Economically speaking, the 21st century has been unusual. The “global balance sheet” is an accounting of the whole world’s economy—counting up the assets and liabilities of households, corporations, governments, and financial institutions. Before 2000, the balance sheet grew in tandem with GDP. Since then, the assets on the balance sheet have increased far faster than GDP, as assets like equity and real estate created $160 trillion in paper wealth. In effect, a glut of savings couldn’t find productive outlets in the real economy, so investment was low. That contributed to sluggish growth, low global inflation, and declining interest rates.
These trends may now be fading. Investment requirements are rising. Progressing toward net-zero emissions, for example, will require incremental investment estimated at two percentage points of global GDP for the rest of this decade. Then there are the stated commitments to new infrastructure, stronger supply chains, and defense.
What’s next? And what can we do about it? To address those questions, the McKinsey Global Institute considered four different plausible scenarios for how the global economy will evolve by 2030.
Scenario #1: Repeat performance
Looking just at the United States, in this scenario, volatility ebbs, and the economy goes back to roughly where it was from 2000 to 2020: high savings, weak investment, a not-too-tight labor market, and low inflation and interest rates. Productivity and output growth are both weak. Wealth continues to grow, but at the expense of real economic output and higher inequality. The balance sheet expands relative to GDP and remains vulnerable to disruption.
Scenario #2: Back to the ’70s
No, not platform shoes and disco. In this scenario, there is something akin to the stagflation the U.S. experienced in the 1970s. Inflation and short-term interest rates stick at around 4%, depressing the real value of assets including equity and real estate. Central banks have to balance fighting inflation with supporting financial stability. Consumption is strong, but growth is unimpressive. Corporate earnings grow slowly, and the lack of price stability means a high risk of market volatility. Real household wealth declines. Relative to GDP, the global balance sheet reverts toward historic averages.
Scenario #3: A balance sheet reset
Think Japan after the real-estate/equity bubble burst, when its total net worth relative to GDP contracted by 20% from 1990 to 2000. Known as the “lost decade,” this was essentially a 10-year episode of stagnation and recession, affecting wealth, income, and financial stability. In this scenario, fiscal and monetary policy tightens strongly to bring inflation down. Asset prices contract in response, putting financial institutions under pressure. Prolonged deleveraging dampens growth as consumers pay down debt rather than spend.
Scenario #4: Productivity acceleration
This is the only scenario that envisions long-term growth of both income and wealth. Greater real investment and the deployment of digital and emerging technologies such as generative A.I. raise productivity. Brisk, broad-based GDP growth boosts household wealth–as much as by an additional $16 trillion in the U.S. alone. Inflation falls while real interest rates rise to about 1 percent on average, supporting productive capital allocation, and improving the health of the global balance sheet. In this strong and stable economy, deposits shrink in real terms and central banks roll back quantitative tightening.
These four distinct scenarios have one thing in common: major real-world consequences. The difference in household wealth between the “balance sheet reset” and “high-productivity” scenarios adds up to $48 trillion in the United States alone by 2030, according to our estimates. And the difference in GDP growth is 1.7 percentage points.
To plan for such a broad range of possibilities, businesses need to go beyond tracking short-term indicators like interest rate decisions or monthly inflation numbers. Instead, they will want to plan for the longer-term structural shifts that will shape your industry. Are net-zero commitments being met? Are trade policies changing? What domestic policy factors matter most?
Because the future is uncertain (and could be worse), firms need to strengthen risk management. Actions could include bolstering equity buffers, strengthening balance sheets, and offloading macro risk. Finally, even while shoring up resilience, businesses should seek new growth opportunities, which may require developing new business models and capabilities.
In recent years, the global economy has endured shock after shock. No doubt many people wouldn’t mind a return to the relative calm of, say, 2019. But the fact is, that cannot be assumed.
Of course, business leaders and policymakers should strive to achieve the best scenario, “productivity acceleration.” But given recent volatility, they should also be preparing for the less favorable ones. When it comes to economics, what’s past is not always prologue.
This article originally appeared in Fortune.