In a recently published report authored by the McKinsey Global Institute (MGI), a consulting firm that provides research and advisory services to large businesses, governments and institutions, we see the ever increasing urbanization of growth around the globe. The report focuses on identifying where the world’s growth opportunities currently lie and where they appear to be in the near future. The paper has an even more extensive focus on the identification of urban markets that are likely to contribute the most to global growth.
Increasing Importance of Global Diversification
The importance of global diversification and how most future growth is expected to come from U.S. and international markets, in particular Emerging Markets is not a new idea. MGI’s report however, outlines some additional new insights into the world’s major cities’ current contributions to global growth and where it’s likely to come from in the future.
Below are some key pieces of data form the report that are most relevant:
- Contrary to common perception, MGI found that the world’s largest cities have not been driving global growth for the past 15 years, and many have not grown faster than their host economies. Its estimated that today’s 23 largest urban areas will contribute just over 10% of global growth to 2025, below their current 14% share of global gross domestic product (GDP) today.
- Middleweight cities in emerging markets are poised to delivery nearly 40% of global growth by 2025, more than the entire developed world and emerging market megacities combined
(middleweight is defined as metropolitan areas with between 150 thousand to 10 million inhabitants and megacities have 10 million or more).
- Currently, 1.5 billion people live in the top 600 urban centers of the world and account for $30 trillion or more than half of the world’s GDP. It’s expected that by 2025 the population in these cities will reach 2 billion and will account for $64 trillion or more than 60% of the world’s GDP.
Again, the importance of global diversification of investments is not new. However, this report gives some merit to paying additional attention to the growth of centres outside of the major metropolitan areas in the emerging economies.
What does this mean for you as an investor?