The FT front page headline today reads ‘Boost for Osborne after IMF predicts UK to top G7 growth’.
It is all too easy to get bound up in short-term headlines, electoral and market cycles. Cycles that don’t persist for more than a few years, and in the process miss the big picture.
It is often the case that we can only truly see and appreciate a great work of art by stepping back and viewing it from a distance. The great canvas of world events is no different in my view, so here goes!
I believe we are on the threshold of significant growth in financial services, powered by two of the most enduring and significant trends of the 20th and 21st centuries.
According to leading experts these two trends are likely to persist for decades, if not generations to come.
The first trend is globalisation, and its impact on world trade. The second is population growth.
Growth in trade and population, are the mega trends of our times, their impact is bigger and development faster than the industrial revolution, bringing billions more into the consumer classes; another 1.8bn by 2050. Both are being super charged through technology innovation, and greater access to education.
Of course there will be bumps in the road, as with the recent sell off in emerging markets, but the enterprise, energy and aspiration of billions, many of them increasingly better educated under 25’s, will not be denied.
It was the industrial and technological revolution that allowed a divergence from the rule that a country’s economic output is broadly in line with the size of its population. But the West’s superiority in new technology and in higher education is ending, and instead of divergence we are seeing convergence.
India and China will soon resume their place as the largest economies of the world, a place they held for all but three hundred years of the last two millennia. But it’s not just the BRIC economies; 7 of the 10 fastest growing economies of the last few years have been African.
These fundamental shifts in the tectonic plates of the global economy mean world trade is growing rapidly, and will continue to do so. Trade needs financial lubrication, cross border trade flows generate cross border transactions, creating the need for financing and capital management. It’s called Moving Money.
Wherever you get trade growth, you get growth in investment capital and wealth creation, new wealth that needs to be managed and protected. These trends will see global demand for infrastructure investment increase by over $50trn by the year 2030. To put that number in perspective it is three times the size of the US economy.
Capital investment will reach new all-time highs. It’s estimated the global asset management industry will grow from $65trn to in excess of $100trn by 2020, and that alternative investments will grow from $6.5trn to over $13trn.
We are already seeing in Jersey the post crisis surge in new real estate and infrastructure funds. Pent up demand, trapped by the dam of political and regulatory uncertainty is being released. But the drivers of economic growth are not only in the new world; the old developed world is changing rapidly too.
Yes, it has saddled itself with debt, debt that will take years to bring under control, but growth drivers are emerging.
It is easy to forget how enormously wealthy the West is; and the potential for huge business opportunity in home markets. Ageing infrastructure in the West, much of it built more than half a century ago is crying out for renewal, it will increasingly be funded through private investment sourced from Asia and the Middle East, creating employment and cross border capital flows.
Ageing populations too will be a spur to growth.
Healthcare spending from private sources will climb in response to government’s failure to make good on social welfare promises. Keeping the wealthy healthy will be big business…. with an estimated $4trn dollar boost in the next decade.
To again put that in perspective, that is bigger than the GDP figure for all but the Chinese, US and German economies.
Technology innovation will, through nanotechnology, genomics, artificial intelligence and robotics achieve as yet unimagined productivity gains.
So the march of globalisation and economic prosperity will resume, and with it significant expansion in world trade, fuelling a growing demand for the acknowledged expertise that Jersey provides in cross border financial services.