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Unprecedented levels of GDP growth since the 1950s Contributions to global GDP growth Compound annual growth rate, % GDP per capita growth Population growth 4.7 4.8 3.8 3.6 3.1 3.0 2.5 1.9 1.9 1.7 0.9 <0.1 0.1 0.3 0.1 0.5 1 1000 1000 1500 1500 1600 1600 1700 1700 1820 1820 1870 1870 1900 1900 1913 1913 1940 1940 1950 1950 1964 1964 1974 1974 1984 1984 1994 1994 2004 2004 2010 SOURCE: Jutta Bolt and Jan Luiten van Zanden, The first update of the Maddison Project: Re-estimating growth before 1820, Maddison Project working paper number 4, University of Groningen, January 2013; UN Population Division; McKinsey Global Institute analysis 7

Capital has become increasingly cheaper Long-term government interest rates in select developed economies % 14 12 10 8 6 4 2 0 1975 1980 1985 1990 1995 2000 2005 2010 2014 Nominal values Ex-post real values SOURCE: Oxford Economics; McKinsey Global Institute analysis

Four disruptive forces changing the picture Industrialization and urbanization in emerging economies An aging world Disruptive technologies Greater global interconnections 9

Per capita GDP rises in parallel with urbanization Per capita GDP 1990 PPP $ (log scale) United States 2013 30,000 10,000 India 2013 China 2013 Japan 2013 South Korea 2013 Brazil 2013 3,000 1820 1,000 1891 1950 1950 1930 1920 300 0 10 20 30 40 50 60 70 80 90 100 Urban population % SOURCE: UN population Division; The Conference Board; McKinsey Global Institute analysis 12

3,000 times larger than the UK Industrial Revolution Country Years to double per capita GDP Population at start of growth period (million) 1700 1800 1900 2000 United Kingdom 154 9 United States 53 10 Germany 65 28 Japan 33 48 South Korea 10 22 China 12 1,023 India 16 822 13

Nearly 3 billion people will join the consuming class by 2025 World population, billion 36% 53% 7.9 Share of population in consuming class Consuming class Below consuming class 23% 6.8 <1% 1.0 0 1.0 13% 23% 3.7 7% 0.9 3% 2.5 0.3 1.3 1.6 0.1 0.1 2.8 2.2 1.2 1.5 5.3 2.4 4.2 1.2 4.0 4.4 3.7 1820 1870 1900 1950 1970 1990 2010 2025 SOURCE: Homi Kharas; Angus Maddison; McKinsey Global Institute Cityscope 2.0 14

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Fertility rates have been declining globally Children per women (over lifetime) 6.5 6.0 5.5 5.0 4.5 Brazil China Germany India South Africa US 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 SOURCE: UN population data; World Bank; McKinsey Global Institute analysis 17

By 2040, about 1 in 4 people in advanced economies and China will be 65 years old or older Share of population 65+, 2040E 65+ population 2040 share, Percent n/a <5% 5-12% 12-20% 20-35% SOURCE: UN Population Division; McKinsey Global Institute analysis 18

Technological breakthroughs are speeding up First phone call 1876 First website 1991 First iphone 2007 Internet of things Mobile Internet 115 years 16 years Hargreaves Jenny 1764 GM s Unimate 1962 Google s Schaft 2010 Artificial intelligence Advanced robotics 198 years 48 years SOURCE: McKinsey Global Institute analysis

Adoption of new technologies is also accelerating Time to reach 50 million users 38 years 13 years 4 years 3 years 1 year 9 months Radio Television Pod Internet Facebook Twitter SOURCE: Press reports; McKinsey Global Institute analysis 20

Technology is disrupting knowledge work 21

Cross-border flows have increased 5-fold since 1990 Goods, services, and financial flows; share of GDP, 1980 2012 $ trillion, nominal; % 30 X Financial flows Service flows Goods flows % global GDP 25 20 15 10 5 0 1980 85 90 95 2000 05 10 12 24% 20% 23% 25% 36% 44% 39% SOURCE: UN Comtrade; International Monetary Fund Balance of Payments; World Trade Organization; McKinsey Global Institute analysis 22

Networks of global trade flows are expanding and becoming much more interconnected USD 50 100 billion USD 100 500 billion USD 500 billion or more Lines show total trade flows between regions, figures in bubbles show participation in world trade 1990 100% = $1.8 trillion 2013 100% = $17.2 trillion 4% 12% 41% 2% 3% 8% 2% 8% 32% 5% 6% 4% 5% 2% 22% 7% 4% 32% SOURCE: The Conference Board Total Economy Database; UN Population Division; McKinsey Global Institute analysis 23

The economic center of gravity is shifting east and south at an unprecedented speed Earth s economic center of gravity 1 CE SOURCE: Angus Maddison; University of Groningen; McKinsey Global Institute analysis

The economic center of gravity is shifting east and south at an unprecedented speed Earth s economic center of gravity 1980 1970 1960 1950 1990 1940 1913 2000 2010 2025 SOURCE: Angus Maddison; University of Groningen; McKinsey Global Institute analysis 1820 1500 1 CE 1000

There will be 150 cities in OECD countries with GDP over $50 billion by 2025 Cities with GDP 1 greater than $50 billion in 2025 N = 147 cities GDP 2025 (RER) $ billion 50-100 100-200 200-500 >500 1 Predicted real exchange rate. SOURCE: McKinsey Global Institute Cityscope 1.1

Developing countries will also have ~150 cities with a GDP greater than $50 billion by 2025 GDP 2025 (RER) $ billion 50-100 100-200 200-500 >500 Cities with GDP 1 greater than $50 billion in 2025 N = 146 cities 1 Predicted real exchange rate. SOURCE: McKinsey Global Institute Cityscope 1.1

Africa s cities will grow strongly African cities with GDP 1 greater than $20 billion, 2007 and 2025 In 2007, only seven African cities had a GDP greater than $20 billion By 2025, this list will expand to include 22 cities spread across ten countries Tripoli Cairo Casablanca Constantine Algiers Oran Tunis Alexandria Banghazi Tripoli Cairo Ibadan Abuja Khartoum Lagos Lagos Nairobi Luanda Luanda Huambo Cape Town Pretoria Johannesburg Cape Town Vaal Triangle Tshwane Johannesburg Durban East London 1 Predicted real exchange rate. SOURCE: McKinsey Global Institute Cityscope 1.1

Even within countries, granular product strategies will be necessary Jingjinji is most concerned about product safety CHINA EXAMPLE Jingjinji cluster Shandong prefers Chinese brands and has high brand loyalty Shandong cluster Shanghai cluster Shenzhen cluster Shanghai prefers well-known brands, especially foreign brands Shenzhen is least concerned about product safety SOURCE: McKinsey Insights China

By 2025, emerging regions are expected to be home to almost 230 companies in the Fortune Global 500 Total in emerging regions 8 23 23 24 130 229 13 2 7 15 1 12 6 6 9 8 95 2 3 13 26 12 11 26 34 120 EMERGING REGIONS Other emerging regions Africa and Middle East Southeast Asia South Asia Eastern Europe and Central Asia Latin America China region 477 477 476 DEVELOPED REGIONS 370 271 1980 1990 2000 2013 2025 SOURCE: Fortune Global 500; MGI CompanyScope; McKinsey Global Institute analysis 30

Externally focused Agile and low cost Optimist

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