Economy on the cusp of a new growth wave

The UK and a number of other leading western economies could be on the cusp of a new growth wave, according to Dr Andrew Sentance, Senior Economic Adviser to PwC.  Speaking at the Institute and Faculty of Actuaries’ (IFoA) annual Spring Thought Leadership Lecture last night (22 June), Dr Sentance argued that investment in new sources of energy and environmentally-friendly technologies is one potential driver of a new phase of economic growth continuing into the 2020s.

Dr Sentance said at the event:

“As we emerge from the financial crisis, better-adapted western economies like the UK, US and Germany are well-placed to embark on a new wave of growth.  However, it is hard to spot the drivers of the next growth phase in advance. In the early 1980s, it would have been hard to predict the information and communications revolution which was to follow.

“We cannot be definitive about the drivers of a new growth wave. Technology will play a major part but it is not the only factor at work. Previous waves of growth have also been driven by major social changes and new business opportunities.”
In addition to new technology, Dr Sentance identified four other major forces which he says can support a new growth wave in the UK and other western economies.

“First, we should see the continuing expansion of the world economy – as economies in Asia and Africa continue to develop and move closer to western living standards. The growth of markets in the emerging and developing world has been a powerful driver of world economic growth in the 21st century so far.

“Second, demographic change - an ageing population – can open up new growth opportunities. Third, we could well be on the threshold of a services sector revolution. The internet, new business models and changes in consumer behaviour and lifestyles have the potential to create major upheavals in services industries.

“The fourth potential ingredient of the new growth wave is the prospect of changes in the energy sector and the way businesses and consumers respond to major environmental challenges – especially climate change. In the US, we have seen how the shale oil and gas revolution has changed the energy system, and affected the global oil market. But the potential to shift to a new low carbon energy system and improve energy efficiency could open up a much bigger range of investment opportunities if economies around the world start to seriously address the challenge of climate change.

“Economies which are well positioned to ride this new growth wave can do well over the next two decades, and that should include the UK. Economies which are less flexible and not so well-adapted to the post-crisis New Normal are likely to struggle, as we see in parts of Europe at present. 

“In the UK, we should not expect to return to the growth rate of nearly 3% we saw in the 25 years before the financial crisis. 2-2.5% growth would be a more likely and sustainable outcome in the post-crisis economic environment. But this would be a much better economic performance than we have seen in the early years of this economic recovery.

“The challenge for the new UK government is to build on Britain’s historic strengths as a major trading economy, and to consolidate the improvements we have made in our economy over the past thirty years. Three key pillars of growth should be: investment in an efficient transport system; making sure we have a well-educated and skilled workforce; and ensuring we have good access to markets around the world. That should include being a full and committed participant in the EU market on our doorstep and supporting further global trade liberalisation – particularly focussed on unlocking the potential for increased trade in services.”

Nick Salter, President of the IFoA comments:

“The IFoA is pleased to have one of the leading thinkers on sustainable business speak at our annual lecture this year.  Dr Sentance makes some very interesting points about future growth opportunities for both developed and emerging economies and it will be interesting to see what drivers of growth emerge in the coming years.  

“It is heartening to hear that new environmentally-friendly energy technologies may be one of these drivers contributing to economic growth, as recent research conducted by the IFoA shows that factors such as climate change and resource constraints need to be addressed if we are to move to a more sustainable financial system.  Indeed, the IFoA created a new Resource and Environment Board in 2014 to look at these very issues, to better understand the long-term nature of many environmental risks and to encourage the profession to be forward looking in reflecting these risks in its work.”

~ENDS~

For further comment or to answer any questions that you may have please contact Annette Heninger, Media Relations Manager at the IFoA, on 07525 592 198 or by emailing annette.heninger@actuaries.org.uk

Editorial notes:

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body. 

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest.  

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.

Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.

The IFoA is available to provide independent expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.

The IFoA conducted research on sustainability and the financial system in May 2015.