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The Global Economy After COVID-19: Looking 10 Years Ahead

June 9, 2021

Image by Pixabay

Without a doubt, we will need to have a significant shift from a high to low carbon economy in the next ten years. How can this transition happen? With more “metals of the future.”

COVID-19 led to a global recession. However, in the long run, the scars that it left on the economy will mostly heal. One of the most important topics to come out of this pandemic is climate worries and geo-politics, meaning this decade of the 2020s will be a green policy transition. There’ll be more need for electrification, renewable power, and recycling with a low carbon economy. This transition offers an excellent opportunity for various industries, including the mining world. This holds especially true given that the financial world will make a shift to favor more green avenues. For the miners that can brand themselves as green, they’ll stand to gain the most during this time.

The Global Economic Outlook

COVID-19 will continue to disrupt local and global economies in the first half of this decade. Many countries’ GDPs continue to drop, and with variation threats such as the recent one discovered in Vietnam and global vaccine rollout, the road to recovery will be bumpy. However, according to the CRU Global Economic Outlook, it’s expected that by 2025, there’ll be some scarring and probably a 2.3% smaller economy than without COVID-19. Still, overall, the economy will be good.  

This chart details the top 10 economies in the world between 2020 and 2050 (measured by GDP at market exchange rates).

One significant difference we can see is that by 2050, China will be a much more different market than it is now as it moves towards a more service-oriented and local economy. This will lead it to become a dominant power and Asia in general as Indonesia makes more significant strides.

The Importance of Environmental, Social and Governance (ESG) in the 2020s

The 2020s will become known as the decade for climate policy for three reasons:

1.     Green recovery will become a critical buzzword as green stimulus occurs across various nations. The United States, for example, has already been pushing for its greener policy to meet the current climate challenges we face.

2.     Early action is better than late action. If we don’t adjust to the current disorder and chaos early enough, repercussions will be even more severe.

3.     The ambition of the Big 3 (U.S., China, and the E.U.) is also setting the tone for a renewed commitment to fight climate change, which we’ve primarily seen in the last 12-18 months.

See the satellite images that show pollution levels in China fall during the lockdown.

The lockdown showed various countries such as China what a less polluted world could look like. So it’s hard to justify going back to bad air quality and a lower standard of living for the sake of the economy. As you can see in the chart above, corporations and investors are looking at ways to curb carbon emissions to support the local community. According to NASA, 2020 tied 2016 for the hottest year on record, so we can agree that extreme weather will only become more frequent without early action. 

The Ambition of the Big 3 

As mentioned before, the political pivot to greener policies from the Big 3 will also increase the green ambition. In the U.S., President Biden recommitted to the Paris Climate Agreement to reach net-zero CO₂ emissions by 2050, have emission-free power by 2035, and this is all part of his Build Back Better plan that’s still in discussion in Congress. In China, President Xi aims to be carbon neutral by 2060 with hopes to see CO₂ emissions peak by 2030 and hopes of launching a carbon trading market. Last but not least, the E.U. stimulus involves 30% on climate topics, such as the EU ETS phase IV in 2021, a carbon border tax is on the table and the E.U.taxonomy, a classification system establishing a list of environmentally sustainable economic activities, went live in 2020.

Mining producers and investors should be aware of the shifting landscape for the mining industry.

Focusing on the Mining Industry

When it comes to the mining industry, the biggest winners will be those who switch to more green alternatives. For example, Chilean mines are successfully switching to solar power, which allows them to cut costs and emissions simultaneously.

These charts show that carbon abatement will have big implications for mining and metals.

Depending on the resources used to generate electricity, electrification can potentially reduce CO₂ emissions from the transportation, building, and industrial sectors. For decades, diesel-powered machines have dominated the mining industry, but in terms of their environmental and health impact they leave a lot to be desired. Fortunately, investment in electrification is gathering pace. In the U.S. alone, the previously mentioned sectors account for 63% of all U.S. greenhouse gas emissions. By addressing the emissions from these areas, corporations and nations will move towards a more decarbonized economy.

This chart shows that metal consumption will continue to rise as they are needed for electrification.

By putting a price on carbon, countries, and businesses will put a price on carbon pollution and ultimately bring down emissions and drive investment into cleaner options.

A map detailing carbon prices to potentially rise to $100-200 by 2040 according to IMF/IEA forecasts.

A chart detailing capex spending is projected to be stable under current plans for the next five years.

Investment levels are pretty flat overall, and there’s not too much of a change in prices. 

This chart details banks are increasingly screening for ESG factors.

All in all, we can see that miners that can better meet ESG criteria will be the winners from investment to the bottom line.

The Key Takeaways

Without a doubt, economic rebound needs to be supported by a green stimulus, and Asia will be more critical than ever. We can expect renewed climate action to take center stage this decade. This will be relevant worldwide and across industries, including the mining industry. Funding will be made easier for miners who can rebrand themselves as low ESG. With CyanoGuard, we can help the gold mining industry better achieve ESG criteria and lower their environmental footprint with our solutions. Discover how here.

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