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Accelerating Growth in the Digital Age Do we need growth? Where might it come from? September 2014 James Sproule, Chief Economist Institute of Directors [email protected] @jamesrsproule UK economic forecasts remain too calm Economic forecasts have a strong tendency to underestimate volatility Consensus estimate real trend rate of UK growth to be ~2.0% Disaggregating consensus does not significantly raise forecast volatility Conclusions Look to economists for a trend Any trend forecast has to stack up with expected changes that can be observed (demographics etc.) UK GDP (HM Treasury consensus survey forecast) 8% 6% 4% 2% 0% GDP -2% Consensus Aug 2006 -4% Consensus Aug 2009 -6% Consensus Aug 13 2014 2012 2010 2008 2006 2004 2002 2000 -8% 2016 Forecast Consensus Aug 14 Source: ONS, HM Treasury Consensus UK – Working Age Population + Productivity FORECAST • Demographics are set to flatten over coming decades and at times WAP will fall. • Assuming productivity increases of last decade can be maintained, GDP outlook can be assumed to follow a similar trend to that set out below. UK: WAP + Prod FORECAST (1960 = 100) 600 550 500 450 400 350 300 Pop+Prod 250 GDP 200 Pop+Prod FCST 150 100 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 Source: ONS, UN Population Database Wither Globalisation? Developed economies remain under significant pressure Macro Economic Pressure • • • Recovery progressing, but dangerous disruptions still loom Tax yields have peaked Monetary policy remains emasculated Political Pressure • Tactical populism tempts Change and a reordering of priorities will be resisted Politicians face trust issues • • Consumer Pressure • • • Consumers show little or no loyalty More product for less money is now the expected normal Many businesses face consumer trust issue Future Trends • • Premium on Agility • Business will lead politics Technology needs fertile ground to flourish New Technology Pressure • • • New technologies allow for lower cost production and distribution Analytics necessary to remain relevant Market commoditising in face of need to invest to compete Technology Five trends pointing one way… • Technology is difficult to predict • Chaos theory suggests that unknowable linkages can lead to unforeseen outcomes • Technology is even more difficult to order • Some promising technologies have been promising since the 1970’s • Cost of computer power continues to fall • Rate of growth may well be slowing • Adoption rates of technology are steadily increasing • Good ideas are able to spread faster than ever • Technology is increasingly a social force • Allows many peripheral relationships to grow virally Technology driver: rising capacity & falling costs Evolution of Computer Power / Cost Source: MoCom 2020 iGDP – per cent of economy attributable to the internet - 2012 Source: McKinsey Total Early Stage Entrepreneurship Source: Global Entrepreneurship Monitor New Business Ownership Rates Source: Global Entrepreneurship Monitor Conclusions • Economic growth matters – a lot! – Economic growth allows old industries and old technologies to be phased out and shut down. • Growth is going to be driven by consumers and hindered by politicians – A lot of people are scared of the future • Barriers to starting a business have been falling – Agility is key: information overload is endemic, so what really matters? • Think outside the box… – Human ingenuity can fix most problems and will avoid the others