Five trends that will change how you invest

• Five big trends – productivity, climate change, aging, multiglobalization, and debt – are set to reshape the world economy.

• And as those trends take hold, it will mean an end to the steadily falling interest rates and low, tame inflation that have defined the past four decades. And it will mean the start of an era of more volatile – and generally higher – interest rates and inflation.

• So if your portfolio’s loaded with just stocks and bonds, it might be time to consider adding real assets into the mix – including some gold and bitcoin – and spreading your investments across different regions.

The global economy is on the brink of a game-changing few decades, set to veer sharply from the patterns we’ve seen in the previous ones. It’s going to mean major shifts in interest rates, inflation, and growth – reshaping everything, including how you invest. And much of it will be driven by the five big swings that just happen to be the topic of a book I’m reading now: The New World Economy In Five Trends by BNP Paribas’s chief economist Koen De Leus and chief strategist Philippe Gijsels. Here’s my take on what lies ahead..

Productivity

As we head into the 2040s, get ready for a massive productivity surge fueled by AI, automation, and other tech leaps. AI will turbocharge industries, making operations smoother, cutting costs, and potentially improving economic growth and living standards. Western economies, in particular, could see a much-needed boost, with productivity as the main growth engine. Unfortunately, there’s always a catch: rapid tech adoption could shake up the job market, sidelining workers in routine roles and driving up unemployment. Countries could end up butting heads over tech dominance, potentially rocking the boat on global trade. And there’s the risk that not everyone will benefit equally – those with tech skills or access to the latest gadgets could pull far ahead, widening the gap between the haves and have-nots.

Climate change

It’s crunch time for climate action. Over the next decade, we should see a huge wave of investment in renewable energy and green tech. Solar, wind, and hydrogen power are set to lead, slashing emissions and creating a more sustainable energy ecosystem. Innovations in electric vehicles and batteries are poised to reshape our commutes. Businesses going green will likely tap into fresh markets and win over eco-conscious customers. And clean energy finance is expected to drive money into sustainable projects, giving both the economy and the planet a boost.

But there are risks too. More frequent and severe natural calamities could wreak havoc on economies and create big financial hits. Shifting from fossil fuels will pose tougher challenges for regions and industries reliant on them, potentially leading to job losses and slower growth. Plus, the price of going green could strain budgets, and uneven climate efforts could widen economic gaps and spark resource battles.

Multiglobalization

You can expect this to be a major buzzword for companies over the next decade. Multigobalization will balance global and local supply chains, increasing resilience and reducing reliance on far-off suppliers. Regional hubs will flourish with this trend, boosting local economies and sparking innovation closer to home. Companies will benefit too, shrinking their risks from geopolitical squabbles and supply chain snags. What’s more, the overall mix of local and global strategies will make for more adaptable and nimble economic moves.

On the flip side, the new fragmented supply chains that result could ramp up inefficiencies and costs, hitting economies that bank on globalization. Rising protectionism and other forms of economic nationalism could sour global relations, slowing trade. And that could force business to have to navigate a new maze of local regulations and market quirks. Striking the right balance between local and international will be key to keeping economies stable and growing amid these shifts.

Ageing

Economies across North America, Europe, and East Asia will face the complications of a rapidly aging population – with fewer people in their working-age years and more in their retirement years. This broad trend will create a boom in the “silver economy”, stroking demand for healthcare, pharma, and eldercare services. Innovations along those lines will likely thrive. Countries that adapt well can ride the wave of economic activity driven by older folks, while younger regions like Southeast Asia, Latin America, and India can support these aging societies with specialized products and services.

But aging populations bring hefty challenges. Places like Japan and parts of Europe could face soaring healthcare and pension costs, which could strain public finances and lead to higher taxes or cuts in services. Labor shortages might drag on productivity and slow economic growth. Meanwhile, younger regions would need to ramp up job creation to avoid high youth unemployment. And those divergent demographic trends could cause economic imbalances and migration pressures, which would call for savvy policies just to keep development ticking along.

Debt

Governments are big spenders: many are increasing their borrowing to make investments in infrastructure, education, and innovation that could spur growth and productivity. Private sector debt is rising too, and when funneled into business expansion, tech upgrades, or consumer spending, that can also jumpstart economic activity and fuel growth. Used wisely, debt can spark economic transformation and long-term prosperity.

But here’s the rub: global borrowing is off the charts, hitting a staggering $315 trillion in 2024 – over 350% of the world’s estimated economic output. High debt can cramp a government’s ability to invest in growth, push taxes higher, or lead to belt-tightening measures that choke recoveries. Countries with deep indebtedness face steeper financing costs and a higher risk of default, especially if interest rates climb. This leaves them more vulnerable to budget pressures and political instability.

Why should you care?

The big takeaway is this: the steadily falling interest rates and low, tame inflation that have defined the last four decades are likely over. And an era of more volatile – and generally higher – interest rates and inflation is beginning.

See, adapting to those revolutions won’t come cheap, and governments and businesses will have to take on debt to cover the bill. That will have more borrowers chasing the same pot of money, which means lenders can demand higher interest rates. And they’ll want to: with these projects carrying plenty of risks – from regulatory changes to market reactions – they’ll require even higher returns to cover their bets. But that could push financing costs up, pouring more pressure on countries’ already ballooning debt piles. All that should keep interest rates high, and volatile.

Meanwhile, on the inflation side of things, that aging workforce might lead to labor shortages, which could drive up wages as companies struggle to keep employees. Shifts in global trade could disrupt supply chains, making imports pricier. And all the while, the climate transition and the AI revolution will fuel demand for commodities, likely pushing prices higher. And let’s not forget the debt: as it balloons and deficits rise, inflation tends to follow suit and central bank actions lose effectiveness.

Sure, this might turn out to be another prediction that misses the mark. But it’s better to be prepared than sorry. So if your portfolio’s loaded with just stocks and bonds, it might be time to consider adding real assets like commodities, infrastructure, natural resources, and real estate. Hedging with gold and bitcoin could be smart moves too. Last, but not least, be sure you’re spreading your investments across different regions, which may help you capture more opportunities and cut your risks.