McKinsey Global Institute: 2024 in charts

The geometry of global trade is changing. Our analysis of the geopolitical distance of trade found wide variation. From 2017 to 2023, China, Germany, and the United States reduced the geopolitical distance of their trade by 4 to 10 percent each. Over the same period, Brazil and India have traded more broadly across the geopolitical spectrum. However, the decline in the geopolitical distance of trade among major economies does not eliminate the possibility of a fragmentation scenario, in which trade between geopolitically distant economies collapses. Nearly 40 percent of trade in globally concentrated products—those for which three or fewer nations account for more than 90 percent of global exports—still occurs between geopolitically distant economies. These products are difficult to substitute, at least in the short to medium term.

Creating a low-emissions energy system while expanding energy access globally requires solving “the hard stuff.” Today, about 10 percent of the technologies needed to meet global commitments to reduce emissions by 2050 have been deployed. For the remaining 90 percent, we identified 25 physical challenges, “the hard stuff,” linked to the development and deployment of low-emissions technologies and the infrastructure and supply chains they need to operate and accelerate deployment. Abating about half of the energy-related emissions depends on addressing the most demanding physical challenges, such as managing variable renewables like wind and solar in a low-emissions power system and developing new low-emissions processes to produce industrial materials such as steel and cement. CEOs and policy makers can navigate these tough challenges by playing offense to capture viable opportunities today, anticipating and addressing bottlenecks, through a blend of innovation and system reconfiguration.

Investing in productivity growth can spur the economic growth that supports higher living standards. Productivity in the median economy has jumped sixfold in the past quarter century, but there is variation. Thirty emerging economies, home to 3.6 billion people, are in the “fast lane” of improvement. If they maintained their pace, they would converge to advanced-economy productivity levels within roughly the next quarter century. “Middle lane” economies would take more than a hundred years, while “slow lane” ones would never converge. At the same time, advanced-economy productivity has slowed by about one percentage point since the global financial crisis. Directed investment in areas such as digitization, automation, and artificial intelligence could fuel new waves of productivity growth in advanced and emerging economies, which is the best way to continue improving well-being and prosperity around the globe.

A microscope on small businesses reveals opportunities to enhance productivity. Micro-, small and medium-size enterprises, or MSMEs, are the lifeblood of the global economy. They account for two-thirds of business employment in advanced economies and almost four-fifths in emerging economies, as well as half of all value added. Improving MSME productivity to match top-quartile levels relative to large companies is equivalent to 5 percent of GDP in advanced economies and 10 percent in emerging economies.

Accelerating competitiveness can close Europe’s prosperity gap in the new era. Shoring up the region’s competitiveness across seven arenas ranging from energy to technology and supply chains could increase value added by €500 billion to €1 trillion by 2030, which is three to six times the incremental annual investment needed to achieve net zero. Closing this gap will enable Europe to grow and thrive while preserving its unrivaled model for sustainability and inclusion.

Achieving economic empowerment would allow a quarter billion people around the world to live better lives. In wealthier countries, higher costs and inequality prevent about 20 percent of the population on average from crossing the “empowerment line,” the threshold above the international poverty line at which people can afford a standard basket of essential goods and services and begin to save. Essentials generally become more expensive as countries become wealthier, and these cost increases tend to match or exceed income gains. While affordability is influenced by policy and the delivery of public services, the private sector has scope to act by easing cost burdens for its own workforces and across its value chains and by developing affordable offerings in housing, energy, food, healthcare, and communication.

We used investment to take Europe’s pulse and found it low. Insufficient investment compromises Europe’s competitiveness, way of life, and standing in the world. US investment in intellectual property and equipment is double that of Europe per capita, and Europe’s pool of venture capital assets is just one-quarter of the US total. Today, returns on invested capital are four percentage points higher in the United States than in Europe. Reducing barriers to investment, such as energy costs, talent shortages, business and labor market regulation, and geo- and macroeconomic uncertainty, can give Europe a pulse on its competitiveness and help attract capital.

Charting the challenge of tight labor markets in advanced economies reveals a long-term trend. Labor markets in advanced economies today are among the tightest in two decades, a long-term trend that may continue as workforces age. We estimate that GDP in 2023 could have been 0.5 to 1.5 percent higher across the world’s eight largest economies if employers had been able to fill their excess job vacancies. Companies and economies need to find new ways to expand the workforce if productivity is to continue to grow, with steps like more flexible work, tailored migration programs, and initiatives to keep seniors at work longer and attract more women into the workforce.

A race is on to deploy AI and new skills in Europe and beyond, portending a new future of work. AI can address changes in employment demand linked to efforts to achieve net-zero emissions, an aging workforce, and growth in e-commerce, but it also will require new skills. In a midpoint adoption scenario accelerated by generative AI, up to 30 percent of current hours worked could be automated by 2030. Accelerated technology adoption coupled with proactive worker redeployment could help Europe increase productivity by as much as 3.0 percent annually to 2030, compared to the rate of about 0.3 percent each year at present. Europe and the United States could require roughly 12 million occupational transitions. Surveyed executives in those regions expressed a need for skills they report are in short supply, such as advanced IT and data analytics, as well as for critical thinking, creativity, and teaching and training.

We’ve identified the next big arenas of competition that will drive economic growth in the new era. These 18 arenas, unique categories of industries distinguished by high growth and dynamism, could reshape the global economy, generating $29 trillion to $48 trillion in revenues by 2040. These arenas, which include AI software and services, cybersecurity, air mobility, obesity drugs, and industrial and consumer biotechnology, could increase as a share of global GDP from 4 percent today to 10 to 16 percent by 2040. Companies in these arenas exhibit three characteristics that escalate competition: cutting-edge technologies, large investments, and large, growing markets. In combination, these characteristics lead to market share gains and a product quality edge that further set these arenas apart.