The European economy has entered its fifth year of recovery, which is now reaching all EU Member States. This is expected to continue at a largely steady pace this year and next.
In its Spring Forecast released today, the European Commission expects euro area GDP growth of 1.7% in 2017 and 1.8% in 2018 (1.6% and 1.8% in the Winter Forecast). GDP growth in the EU as a whole is expected to remain constant at 1.9% in both years (1.8% in both years in the Winter Forecast).
Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: "Today's economic forecast shows that growth in the EU is gaining strength and unemployment is continuing to decline. Yet the picture is very different from Member State to Member State, with better performance recorded in the economies that have implemented more ambitious structural reforms. To redress the balance, we need decisive reforms across Europe from opening up our products and services markets to modernising labour market and welfare systems. In an era of demographic and technological change, our economies have to evolve too, offering more opportunities and a better standard of living for our population."
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: "Europe is entering its fifth consecutive year of growth, supported by accommodative monetary policies, robust business and consumer confidence and improving world trade. It is good news too that the high uncertainty that has characterised the past twelve months may be starting to ease. But the euro area recovery in jobs and investment remains uneven. Tackling the causes of this divergence is the key challenge we must address in the months and years to come.”
Global growth to increase
The global economy gathered momentum late last year and early this year as growth in many advanced and emerging economies picked up simultaneously. Global growth (excluding the EU) is expected to strengthen to 3.7% this year and 3.9% in 2018 from 3.2% in 2016 (unchanged from the Winter Forecast) as the Chinese economy remains resilient in the near term and as recovering commodity prices help other emerging economies. The outlook for the US economy is largely unchanged compared to the winter. Overall, net exports are expected to be neutral for the euro area's GDP growth in 2017 and 2018.
A temporary rise in headline inflation
Inflation has risen significantly in recent months, mainly due to oil price increases. However, core inflation, which excludes volatile energy and unprocessed food prices, has remained relatively stable and substantially below its long-term average. Inflation in the euro area is forecast to rise from 0.2% in 2016 to 1.6% in 2017 before returning to 1.3% in 2018 as the effect of rising oil prices fades away.
Private consumption to slow with inflation, investment remaining steady
Private consumption, the main growth driver in recent years, expanded at its fastest pace in 10 years in 2016 but is set to moderate this year as inflation partly erodes gains in the purchasing power of households. As inflation is expected to ease next year, private consumption should pick up again slightly. Investment is expected to expand fairly steadily but remains hampered by the modest growth outlook and the need to continue deleveraging in some sectors. A number of factors support a gradual pick-up, such as rising capacity utilisation rates, corporate profitability and attractive financing conditions, also through the Investment Plan for Europe.
Unemployment continues to fall
Unemployment continues its downward trend, but it remains high in many countries. In the euro area, it is expected to fall to 9.4% in 2017 and 8.9% in 2018, its lowest level since the start of 2009. This is thanks to rising domestic demand, structural reforms and other government policies in certain countries which encourage robust job creation. The trend in the EU as a whole is expected to be similar, with unemployment forecast to fall to 8.0% in 2017 and 7.7% in 2018, the lowest since late 2008.
The state of public finances is improving
Both the general government deficit-to-GDP ratio and the gross debt-to-GDP ratio are expected to fall in 2017 and 2018, in both the euro area and the EU. Lower interest payments and public sector wage moderation should ensure that deficits continue to decline, albeit at a slower pace than in recent years. In the euro area, the government deficit to-GDP ratio is forecast to decline from 1.5% of GDP in 2016 to 1.4% in 2017 and 1.3% in 2018, while in the EU the ratio is expected to fall from 1.7% in 2016 to 1.6% in 2017 and 1.5% in 2018. The debt-to-GDP ratio of the euro area is forecast to fall from 91.3% in 2016 to 90.3% in 2017 and 89.0% in 2018, while the ratio in the EU as a whole is forecast to fall from 85.1% in 2016 to 84.8% in 2017 and 83.6% in 2018.
Risks to the forecast are more balanced but still to the downside
The uncertainty surrounding the economic outlook remains elevated. Overall, risks have become more balanced than in the winter but they remain tilted to the downside. External risks are linked, for instance, to future US economic and trade policy and broader geopolitical tensions. China's economic adjustment, the health of the banking sector in Europe and the upcoming negotiations with the UK on the country's exit from the EU are also considered as possible downside risks in the forecast.
Background
This forecast is based on a set of technical assumptions concerning exchange rates, interest rates and commodity prices with a cut-off date of 25th April 2017. Interest rate and commodity price assumptions reflect market expectations derived from derivatives markets at the time of the forecast. For all other incoming data, including assumptions about government policies, this forecast takes into consideration information up until and including 25th April 2017. Unless policies are credibly announced and specified in adequate detail, the projections assume no policy changes.
(Source: EU Commission)
From the bitcoin to regulatory functions, here Alexander Dunaev, COO at ID Finance, discusses the need for cooperation in the fintech segment and touches on five vital steps for the sustainable growth of one of the largest emerging sectors in the financial sphere.
Ronald Reagan once succinctly summarized the US government’s view on regulation the following way: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it”. Taking the UK as an example, financial technology is worth c.GBP7billion and employs around 60,000 people - safe to say, the sector is on a roll. On top of the direct economic effect, one has to consider fintech’s wider broader economic impact from lowering the lower cost of credit or insurance, improving the level of financial inclusion and reducing financial transaction costs across remittances, payments and investments.
Of course any industry is prone to missteps along the way. The few examples for fintech globally include the proliferation of Ponzi schemes in China together with the growth of P2P lending, the use of bitcoin for illegal purchases and investor misleading at Lending Club that brought the demise of the company’s founder. Nonetheless, since the industrial benefits are beyond reproach, the ball is in the regulator’s corner to curb the excesses, streamline the judicial framework and establish the rules of the road for the multi-faceted and rapidly ascending Fintech industry.
There is clear recognition worldwide that regulation is needed to ensure long-term and sustainable growth. At the end of last year, the Office of Comptroller of the Currency (OCC), a division of the U.S. Department of the Treasury, proposed to create a federal charter for non-deposit banking products and services – a major change for a country with state-by-state financial regulation which could lower barriers to entry for companies looking to innovate the financial services industry. While the Governor of the Bank of England Mark Carney has recently stressed the need to create holistic infrastructure to support the flourishing sector.
Having had first-hand experience in a regulated financial services industry from Brazil to EU and Central Asia, I believe there are a number of clear steps that can drive the growth of fintech globally.
1. Clear communication with the industry
Although it may appear obvious, it is critical for the regulator to engage with the fintech industry in gaining an optimal understanding of the needs of the industry. Obviously the industry is only one of the voices, but in the environment of rapid technological and economic change, it makes sense to get first-hand information. This may help the regulator to prioritize and focus on solving strategic issues.
2. Share regulatory functions
As much as is possible, regulatory functions have to be shared. The fintech umbrella covers multiple industries: consumer and corporate lending, insurance, payments to name a few. In our experience it makes sense to functionally compartmentalize the regulation. For instance, the central bank or consumer protection bureau division regulating consumer lending by the banks should be regulating the similar area of fintech activity. This makes sense from the perspective of synchronized standards for consumer protection. It’s in everyone’s interests to have a unified set of standards on anti-money laundering (AML) and know-your-client (KYC) information disclosure as well as collection practices. Furthermore, incorporating fintech regulation together with mainstream financial services firmly places the former into the center of regulatory attention.
3. Focus on creation of new infrastructure
Any government should be actively seeding, sponsoring and promoting what Mark Carney calls “hard infrastructure” for the new breed of financial services companies. This type of infrastructure is more often too much of a burden even for shared corporate investment, yet its potential benefits are clear for any country. The area of focus should be within payments, settlement, identification and data access. One of the best global examples of the sovereign strategic thinking on the subject is undoubtedly Aadhaar in India – a biometric ID system with over one billion enrollees or most of the country’s adult population. This gargantuan project coupled together with the country’s recent clamp down on hard cash in the economy can really change the lives of hundreds of millions of its citizens by actively encouraging financial inclusion.
4. Share the use of existing infrastructure
While creation of the infrastructure is clearly needed, there is lower hanging fruit for driving industrial competitiveness available to regulators globally. First and foremost it is key to empower the citizens to take ownership of their data held by large incumbents including mainstream financial services (banks, insurance companies) and telecom companies. The way to do this is through the mandatory sharing of this information to third parties, obviously with the explicit consent of the ultimate data owner. While on the one hand it enables the latter to monetize the data and get access to more competitive offerings, this also enables the fintech firms to focus on what they do best: deploy cutting edge technologies and data analysis in targeting market inefficiencies. The prime example of data sharing is the PSD2 directive in the EU that is forcing banks to open up the trove of transactional data to third-parties via API. This initiative is clearly laudable and should be mirrored by regulators globally.
5. Introduce 5-year road maps
Regulatory uncertainty acts as a major overhang, preventing the industry from developing. First and foremost this uncertainty stops the flow of capital into the industry creating a massive earning multiple compression. This further prevents the reinvestment of capital due to the increase in uncertainty. It’s important to emphasize that in the fintech world global players with technological know-how have optionality over geographical expansion. All else being equal, these companies will always invest in the countries with the most transparent rules of the road. This implies that the countries that take an ambivalent position are in a precarious position of losing out.
The future of the fintech industry will not be shaped by market adoption and technological advances alone. The role of the government in fostering fintech and steering it in the direction of sustainable growth is key.
Looking at data form the past few months, Tim Kellet, Director at Paydata here explains to Finance Monthly the ins and outs of pay rises, wages and bonuses, as well as growth across the nation and the increasing lack of skilled labour supply across several sectors.
Once a quarter we run an extended version of our monthly PAYstats pay and labour market statistics publication.
We began running these quarterly updates six years ago, to summarise and add commentary to key statistics that are relevant to HR and Reward. The data was already in the public domain across different sources, but by producing a document containing everything it made it more accessible, and easier for our customers to digest. The information provided within the report is extremely valuable, providing a comprehensive overview of the current economy, in relation pay and reward decisions.
This spring, and the months leading up to it, has been somewhat of an uncertain time; the Chancellor of the Exchequer has delivered his first, and last, spring budget statement and Article 50 has been triggered. With Brexit looming, it doesn’t appear as if the UK will be experiencing true stability for some time – there is also an avalanche of changes in HR and Employment law that businesses must contend with.
April has brought with it the introduction of the Apprenticeship Levy, increases in minimum wage, the immigration skills charge, the formal beginning of gender pay reporting as well as changes in taxation and increases in redundancy, sick and family-related pay.
When these changes are coupled with the macro-economic issues and the protracted negotiations that will determine our ongoing relationship with the EU, not to mention the rest of the world, uncertainty prevails.
Already, we are witnessing above target inflation; the Office for Budget Responsibility has forecasted that CPI inflation will rise to 2.4% this year. The rising cost of food, alcohol and clothing along with miscellaneous good and services are a big contributor to the changes. Overall growth is likely to slow as households adjust their spending to a lower income growth due to the 18% fall in sterling.
Despite the turbulent background, little out of the ordinary appears to be happening in terms of pay awards. The extended period of pay movement continues, annual regular pay growth within the private sector had declined to 2.6% by January of this year. Steadily, this is starting to be overtaken by higher levels of inflation, eroding the true value of pay rises. Meanwhile, the productivity problem persists and uncertainties with regards to the markets are doing little to appease an underlying sense that there may yet be darker times ahead.
While the unemployment rate has fallen below 5%, and the employment rate reaching 74.6%, wage growth has remained weak. It is now thought that the unemployment rate can decrease further before wage pressures build to a point where they are sufficient to keep inflation at the 2% target over the medium term.
Bonus payments have also been weaker than expected, and the reports that are being issued from the financial sector on the size of the bonus payments, are likely to make little contribution to overall pay growth in 2017.
There are also significant concerns regarding the supply of suitable people for the labour-market and the availability of EU nationals currently working in the UK. Alongside this, the supply of permanent candidates fell severely in March, although the rate of reduction had weakened since February’s 13-month peak. Similarly, the availability of interim and short-term staff fell at a rate that was the quickest recorded since the beginning of 2016.
This quarter’s CIPD net employment balance (which measures the difference between the proportion of employers who expect to increase staff levels and those who expect to decrease staff levels) has increased by one point to 23%.
Employers in the UK report fair hiring prospects between now and June; 87% forecast no change, while 8% expect to increase staffing levels and 3% expect to decrease – the Net Employment Outlook is 5%.
Data from Manpower’s Employment Outlook Survey, shows that in seven of the nine industry sectors, staffing levels are expected to increase throughout the second quarter of 2017. Employers within the construction sector report decent hiring plans with a Net Employment Outlook of 12%. Similar gains are also expected in the manufacturing, utilities and finance and business sectors, while employers in the agriculture sector are reporting uncertain hiring prospects.
The Chief Executive of the Recruitment & Employment, Kevin Green explains further: “Finding people to do the jobs on offer is rapidly becoming employers’ biggest headache and many are reporting an increasing number of white-collar jobs as hard to fill, including the IT and financial sectors. Shortages of appropriately skilled, willing and able candidates was a problem before the referendum. Our concern is that Brexit will make the problem worse, particularly if onerous restrictions are imposed on people coming from the EU to work. Also, economic uncertainty about future prospects is having a detrimental effect on employees’ willingness to risk a career move at this time, which seems to be driving down candidate availability. This shrinking pool of available candidates means that businesses are boosting the starting salaries and hourly rates they are prepared to offer to the right candidate.”
A new UN study reveals that Alipay and WeChat Pay enabled US$2.9 trillion in Chinese digital payments in 2016, representing a 20-fold increase in the past four years. The data shows that digital payments, using existing platforms and networks, provide access to a wider range of digital financial services, expanding financial inclusion and economic opportunity throughout China and neighboring countries.
The new report by the UN-based Better Than Cash Alliance, Social Networks, E-Commerce Platforms and the Growth of Digital Payment Ecosystems in China – What It Means for Other Countries, contains key lessons to help other countries include more people in the economy by transitioning from cash to digital payments. This shift could increase GDP across developing economies by 6 percent by 2025, adding US$3.7 trillion and 95 million jobs, according to a McKinsey Global Institute report.
"Social networks and e-commerce platforms are growing in every economy, whether large or small," says Ruth Goodwin-Groen, Managing Director at the Better Than Cash Alliance. "In China digital payments are thriving from these channels, bringing millions of people into the economy. This matters because we know that when people – especially women – gain access to financial services, they are able to save, build assets, weather financial shocks, and have a better chance to improve their lives."
"Widening access to financial services has always been at the heart of Ant Financial's mission and we are proud to have empowered more people to save, invest and gain access to capital. There is a quiet revolution underway and we know, firsthand, that our services are making a real difference to hundreds of millions of consumers. But, as this ground-breaking UN report highlights, this revolution is only just beginning. We see tremendous potential to bring many more people into the financial system, in China and markets around the world," says Eric Jing, CEO of Ant Financial Services Group, which operates Alipay.
Key findings from the report:
The study also found both Alipay and WeChat are expanding beyond China and investing in major fintech and payments providers. They are joined by other major communication platforms, utilizing existing social networks and e-commerce platforms to drive digital payments and financial inclusion. The report found opportunities especially strong in countries with a high smartphone uptake and collaboration between the private and public sectors:
(Source: Better Than Cash Alliance)
An independent study commissioned by Dun & Bradstreet has shone a light on the complexities of the modern Financial Leader role – highlighting a community under intense pressure to balance traditional accounting tasks with more strategic revenue-generating activities.
Of the 200 UK Financial Leaders surveyed, almost three-quarters (71%) believe finance teams are under too much pressure to be business protector and growth driver and 56% believe their board has unrealistic expectations.
Exploring the evolving nature of their role, almost all (97%) financial leaders surveyed say their responsibilities have changed over the last three years. Most pointed to a growing emphasis on strategic responsibility, with 59% revealing their job now includes more risk and compliance responsibilities.
Dun & Bradstreet’s Tim Vine, head of Trade Credit for UK & Ireland, explains, “The role of the financial decision maker has transformed over the last few years and, while many (74%) financial leaders feel this has been a positive shift overall, it’s still a major challenge. Suddenly, teams who have reduced in size now have to manage a complex dual role – business gatekeeper and revenue creator.”
Yet despite their expanding role, 60% of respondents say their team has decreased in size over the last three years. As a result, 53% admit reduced resources increase the risk of serious mistakes being made. Almost two-thirds of respondents (59%) suggest their organisation sometimes rushes through the compliance process to support revenue-generating activity and 55% reveal they feel uncomfortable with the extent to which their business sometimes gambles on risk management.
To meet the expectations of their businesses and fulfil their roles effectively, the majority of respondents (45%) believe data is “extremely important” to make smart decisions and forecasts. The biggest data benefit cited by 43%: helping collate customer intelligence. However, 57% of financial leaders admit their business lacks the ability to access accurate and current data. The biggest barriers respondents see are: a lack of skills (23%), lack of investment in technology (21%) and inaccurate data (20%). As a result, almost two-thirds (65%) admit it’s difficult to find and capitalise on strategic opportunities.
“The UK’s financial leaders know how powerful data analysis and smart use of technology can be in helping them meet business expectations in their new joint role as business guardian and revenue driver,” continues Vine. “Despite the challenges they clearly face, these two roles are not opposites. Protection and growth can go hand-in-hand, but only when they are underpinned and supported by the resource, tools and data to allow for smarter decisions that will grow the business. If financial leaders are to fulfil this duel objective, they must gain support for the data and analytical capabilities needed to empower their insight.”
(Source: Dun & Bradstreet)
While self-employment has risen noticeably slower than paid-employment since the beginning of the decade, Canadian small- and medium-sized enterprises (SMEs) have been creating a more significant share of jobs since 2010, finds a new report by CIBC Capital Markets.
Between 2010 and 2016, 42% of new jobs were created by businesses with less than 100 employees, up from 30% between 2000 and 2010.
"Beyond the threshold of five employees, there is a clear positive correlation between size and growth, with larger firms within the SME spectrum seeing progressively stronger growth recently," says Benjamin Tal, Deputy Chief Economist, CIBC, who co-authored the report, Canadian SMEs: Strength Beneath the Surface, with Senior Economist Royce Mendes.
"What's more, the share of larger SMEs has risen to a level not seen in almost a decade," Mr. Tal says, noting the trend is particularly strong west of Quebec. "Each province from Ontario to B.C. has exhibited a growth rate of more than nine% in the number of companies with employees."
In 2016, more than 350,000 businesses were created and just under 300,000 exited, with the entry rate (the ratio of business creation to total businesses) on the decline since 2004 while the exit rate has been more stable, despite the impact of the fall in oil prices a couple of years ago.
"Small business optimism has been grinding higher since bottoming out early last year and appears headed back to levels seen prior to the oil price shock," Mr. Tal says. "With the Canadian economy in recovery mode, the environment for small businesses remains constructive."
And while the World Bank ranks Canada as one of the best places to start a new business due to access to capital and a favourable tax regime, the report highlights several gaps, including access to financing for certain business.
"From companies with high growth rates to those with young owners, some SMEs do face more acute issues finding financing," Mr. Tal says.
The report also highlights that women remain an untapped resource in the SME space.
"Female participation in the workforce has made significant progress over the past few decades, but entrepreneurship remains an area that could see improvement," Mr. Tal says. "Female majority ownership in the SME space represents less than 20% of all businesses, and recent progress has been slow in coming."
Another gap is youth entrepreneurship. Canadians between the ages of 25 and 39 comprise more than 25% of the population, yet represent less than 15% of small business owners and less than 10% of medium-sized business owners.
Canadians aged 50 to 64 years, by comparison, also represent about 25% of the population but this group represents 47% of small business owners and 51% of medium business owners.
"One reason for this discrepancy could be related to their access to financing. Remember that companies with younger owners face much more difficulty when trying to externally fund their business," Mr. Tal says. "It will be important to watch this segment of the population as Canada tries to compete with other countries in the tech landscape, which is more tilted toward younger business owners than other industries."
Canadian SMEs have also been slow to expand revenue sources outside of Canada and North America.
"SME revenue continues to be geographically concentrated in North America, creating risk," Mr. Tal says. "Currently only 10% of SMEs are involved in any sort of exporting at all, and roughly 90% of those companies are sending their wares to the U.S. In the current political environment, it has become a risky proposition to focus solely on the U.S. market."
The report notes that there is room to increase the ratio of Canadian goods and services being exported to Asia and Latin America.
"The age of digital connection has made it much easier to send Canada's high-end service exports all over the world, something many SMEs could benefit from," Mr. Tal says.
(Source: CIBC)
Albania's official Institute of Statistics (INSTAT) has released figures showing GDP growth for 2016 of 3.46%, fuelled in part by a fourth-quarter export surge of 16%. Growth exceeded forecasts by both the International Monetary Fund and the World Bank.
INSTAT reported that the growth was led by commercial trade, tourism, construction and energy production, all of which generated robust figures. Overall, the year's performance was the best since 2010 when growth was 3.7%.
In welcoming the encouraging data, Prime Minister Edi Rama said: "This is good news, but it's only the start of what we hope to achieve on the economy. My government's first term has focused primarily on institutional reform and improved governance. Now we are starting see the results -- in investment, business expansion and in job creation. Now we must pour all our efforts into economic expansion and generating rewarding jobs for our fellow citizens."
The Prime Minister highlighted major reforms to the power generation system which, in 2013, needed an infusion of US$ 135 million from the state budget merely to remain operational. The revamped grid, now almost fully replaced with new technologies, has reduced power losses to 28% from 45%. As a consequence of the reforms, electrical energy sector production rose 62% in the final quarter of 2016 alone, and 30% for the full year, Mr Rama said.
Restored confidence in the Albanian economy meant that foreign direct investment for 2016 reached a record EUR 983 million, a 10.5% rise over the previous year, according to the Bank of Albania. In the last quarter, FDI reached EUR 276 million, a full 70% rise year-on-year.
Commenting on the INSTAT announcement, Finance Minister Arben Ahmetaj said it confirmed an overall improvement in the Albanian fiscal situation. "Stable government debt, as one of the most vital indicators of the macroeconomic health in the country, is now in a much more favorable position than it was a few years ago," Mr. Ahmetaj said.
"After more than two decades during which, with a brief exception in 2010, the State Budget was operating at a deficit, now in 2016 the budget has been able to record a surplus. In the 2017 budget as well as in the medium term framework for the years to follow, a primary positive balance has been established as a target and will be adhered to, meaning another surplus, and a growing one. As a consequence, fiscal policy followed in the last few years has made it possible to halt and reverse the unhealthy trend of government debt since 2008."
A new fiscal rule, backed by legislation, mandates the government to decrease government debt every year until it reaches a stable maximum of 45% of GDP.
(Source: Belgrave Strategic)
JLT Specialty, the specialist insurance broker and risk consultant, saw a 60% increase in the number of insured deals during 2016 compared to 2015 globally. This type of Mergers and Acquisitions (M&A) insurance, also known as Warranty and Indemnity (W&I) insurance - of which the real estate and private equity sector remain the key beneficiaries of - is designed to pay out if a buyer discovers the business bought is not what the seller advised it would be.
In its annual M&A Insurance Index report, JLT found that the average limit of insurance (as a percentage of the enterprise value) increased by 16% in 2016 compared to the previous year. This equates to an average insured amount of 29% of the total deal value for global transactions outside of the US.
This may be a reaction to perceived heightened investment risk driven by economic uncertainty around the Brexit negotiations, but equally it may reflect the ever-falling premium rates, as today it is possible to get more protection for less premium. Levels of cover in the US were lower at 23% of deal value, but Japan and Singapore saw the highest levels of protection at 30% and 34% respectively.
Overall market capacity has increased, largely due to new insurer entrants. Existing insurers and managing general agents are also significantly increasing their individual line sizes with a number now able to deploy $US100m+ per deal, allowing high limits of insurance to be met by a single or small number, of insurers. This has advantages from an execution risk perspective, as well as potential benefits in the event of a claim.
The real estate sector continues to be one of the main users of M&A insurance. Alongside this, private equity deals still represent a majority of insured transactions, with industrial and retail markets becoming increasingly frequent users. In what is becoming common practice across numerous business sectors, the seller often facilitates the use of insurance very early on in the deal process to optimise its exit from the transaction.
Furthermore, JLT found that whilst the seller commences the insurance process 40% of the time, it is the buyer that is the insured party on 93% of deals. This reflects a strong seller marketplace where selling parties have been able to negotiate reduced liability under the sale agreement and offer a W&I insurance policy to the buyer instead.
Ben Crabtree, Partner, Mergers and Acquisitions, JLT Specialty, said: “The events of 2016 in the UK and Europe have served as a test of maturity for the M&A insurance market, which perhaps surprisingly, has continued to soften further, both in terms of premium rates and policy retention levels, compared to 2015. This underlines the fact that competition between insurers remains at unprecedented levels. However, the market may harden a little if the current increase in claims activity we’re seeing continues.”
(Source: JLT Specialty)
GDP growth in Canada's banking industry will be limited to 2.4% this year amid a slowdown in consumer and business credit growth, according to The Conference Board of Canada's first outlook for the Canadian banking services industry. Still, the industry is expected to perform better than the overall Canadian economy and profit margins will remain healthy over the forecast period.
"Despite a sluggish Canadian economy, the banking industry managed a strong performance in 2016 largely due to the robust growth in the housing sector and equity markets," said Kristelle Audet, Senior Economist, The Conference Board of Canada. "However, with growth in consumer and business credit expected to weaken going forward, the industry will expand at a slower rate than what we have seen in recent years, although it will still outperform the overall Canadian economy".
Highlights
The robust performance of the industry in recent years was largely driven by non-interest income sources due to historically low interest rates. Interest income, which accounts for over 40% of the industry's revenues, has remained essentially flat in recent years. In order to generate revenue growth, the industry had to look for other sources, including insurance and investment management services, as well as banking fees.
The banking industry has also been keen to tap into the business loan segment in recent years. Chartered bank loans issued to the private sector have posted their longest expansion on record—24 consecutive quarters of growth since the 2009 recession. However, the double-digit increases seen through 2016 will not be sustained moving forward, with a slowdown in private sector lending growth expected this year.
Also, with the housing market forecast to cool as a result of new taxes and tightened mortgage-lending rules combined with interest rates likely to rise at modest pace starting in 2018, growth in mortgage and non-mortgage debt will continue to ease. In fact, this year, for the first time in 25 years, growth in disposable income should outpace growth in consumer debt.
Growth in the industry will thus be limited by more moderate growth in both consumer and business credit. Given the more challenging business environment, the industry is undertaking significant efforts to keep costs growth under control, which will allow it to maintain a healthy profit margin throughout the forecast. However, there are still risks to this outlook. A correction in either the housing or equity markets would have a significant impact on the industry's performance.
Despite historically low interest rates, the industry's profit margin has improved significantly in recent years and is expected to average around 31% over the next five years. Meanwhile, pre-tax profits will continue to climb, reaching over $80 billion this year.
(Source: Conference Board of Canada)
Growth in the number of SMEs in the technical and professional sector2 has outstripped every other industry since 2010, according to the latest study from specialist challenger bank Hampshire Trust Bank.
The research conducted in partnership with the Centre for Economics and Business Research (CEBR), reveals there are almost 40% more legal services SMEs, architects and vets than in 2010. Other sectors which have seen high levels of growth3 since 2010 are information and communication (33%) and business services (25%). Looking at the UK as a whole, there has been a 17% rise in the number of SMEs from 2010.
The study highlighted that despite a lower percentage of start-ups entering retail and construction4, these sectors do have higher numbers of SMEs overall. However these two sectors attributed financial concerns as barriers to growth in their industries which may deter start-ups in the sectors. Nearly two in five (39%) retail and three in 10 (28%) construction companies said competition in the market was the biggest barrier to growth.
Sectors by level of growth
| Sector | Level of Growth3 | Fastest growing business size band 5 |
| Technical & Professional2 | 39% | 0 to 4 |
| Information & Communication | 33% | 0 to 4 |
| Business Services6 | 25% | 0 to 4 |
| Transport & Distribution | 22% | 0 to 4 |
| Services7 | 19% | 100 to 249 |
| Real Estate8 | 17% | 10 to 19 |
| Hospitality | 13% | 20 to 49 |
| Manufacturing | 6% | 0 to 4 |
| Construction | 4% | 0 to 4 |
| Retail | 3% | 10 to 19 |
| National Average | 17% | 0 to 4 |
The sectors experiencing a higher number of start-ups correspond to those demonstrating a greater level of confidence when it comes to the long-term economic prospects of the industry they operate in – with three in five (59%) accountancy, IT and communication firms saying they feel optimistic.
Mark Sismey-Durrant, Chief Executive Officer at Hampshire Trust Bank, said: “Our report identifies the critical role of SMEs within the economy, particularly the many micro firms that are emerging in the UK. It’s encouraging to see SMEs enter all sectors from 2010 – 15 and from our experience many are identifying opportunities for growth in the future. These figures should be seen as a source of optimism for the government in terms of providing employment and long-term economic prosperity for the years ahead.
“As the government prepares to set out plans for leaving the EU, I urge them to keep the spotlight on smaller companies by creating conditions and opportunities which will support the levels of growth our research has identified.”
Nina Skero, Managing Economist at CEBR, said: “This study is yet another indicator of how strong UK SMEs are and the vital role they play within the UK economy. It’s encouraging to see SMEs across various industries posting a strong performance. This further highlights how vital it is to nurture the optimism they are demonstrating if they are to continue driving economic growth.”
(Source: CEBR)
According to the annual Business Pulse Survey by SunTrust Banks, Inc., nearly two-thirds of business leaders expect the global and US economy to improve through 2017. Even more optimistic about their own companies, as 75% of middle market (annual revenue of $10-150 million) and small business (annual revenue of $2-10 million) leaders feel their business outlook is strong. Both segments have high expectations for healthcare (46%) and tax reform (44%) as a catalyst for growth. Mid-market leaders also cite reducing regulations (39%) and investments in infrastructure (37%) as ways to spur business momentum.
"This year, business leaders are feeling very prepared to take advantage of growth opportunities, 75% believe they have access to the critical capital needed," said Allison Dukes, Commercial and Business Banking executive at SunTrust. "Three out of four have a goal-setting process linked to long-term growth strategies and are comfortable that they will achieve their goals."
In 2017, the short term priority for 31% of mid-market companies is profitability, a 29% increase since 2016; while 34% of small businesses are focused on revenue, a 54% increase from last year.
Looking out five years, introducing a new product or service is still the top long-term strategy to stimulate growth for both mid-market (40%) and small business leaders (31%), while making a major capital investment (31%) and acquiring another company (17%) is a greater priority for the mid-market. To undertake these initiatives, common strategies include using cash on hand, reducing costs, obtaining a bank loan and reinvesting corporate earnings.
"Over the past four years, businesses in the small and mid-markets have taken incremental steps toward growing their companies, including M&A, hiring, and improving cash flow. At SunTrust, our purpose is to Light the Way to Financial Well-Being for our clients, and we have been working with them to ensure they have the tools and capabilities to grow their business in a smart way. Now, they see an opportunity for significant structural changes in taxes and regulations to unleash additional business growth," added Dukes.
Decision-makers representing more than 500 small and mid-size businesses participated in the SunTrust/Radius Global Market Research survey. Survey results have a maximum margin of error of +/- 5 percentage points at a 90% confidence level.
(Source: SunTrust Banks, Inc.)
The UK’s tech growth over the last decade has been phenomenal, and this very much thanks to technology startups and increased expansion of innovate firms. However, in the midst of uncertainty and instability, expansion is often being pushed to foreign soils, mostly due to a lack of the right people. This week we heard from Adam Hale, CEO of Fairsail, on the role that the UK must continue to play as a global tech hub and the skills crisis that could stand in the way of this.
The unique value of our tech industry comes from the large number of digital businesses starting up and scaling globally out of the UK market. Just look at the hotbeds of innovation in Tech City, Silicon Fen or the Thames Valley areas. To fuel that innovation, and the growth it powers, acquiring the right talent is a pre-requisite. However, despite having the necessary funding and bright ideas, recruiting people with the right technology skills can often being the biggest barrier to global expansion for companies looking to scale up. It’s a barrier we’ve come up against time and time again.
As the CEO of Fairsail, the UK’s fastest growth technology scale up, head-quartered in Reading but with offices and customers around the world, the current skills crisis makes it difficult for us to keep software development in our home market. The skills crisis means that, for companies like us, exports are hampered because we can’t get enough technical skills to keep up the development and innovation that our global market is demanding. Without the right people with the right skills, scale ups are being forced to move development offshore. And without a solid strategy to reverse the skills crisis, the UK tech economy risks losing its momentum. So what can we do?
To start with, there needs to be more recognition of technology as an important part of the UK economy, and government strategy must reflect the real demand for digital skills. Radical action to address the systemic flaws in our education system is at the heart of this. Recent announcements by the government do show improvement in its efforts to address the skills gap, most notably the creation of ‘T-Levels’ announced in the Chancellor’s Spring Budget that will provide 16-18 year olds with vocational technical education to the same level as their academic equivalent – A Levels. However, digital is only one of 15 different technical routes to choose from. So, while £500m investment in skills may be a headline grabbing figure, in reality, it boils down to an insufficient concentration on where we need to radically improve skills – in IT.
Much greater investment is also needed to improve teaching and present the technology industry as an attractive career choice from a young age. Currently, the supply of technical school leavers/graduates is pitiful and does not come close to fulfilling demand. In 2016, only 5,600 students studied Computer Science at A-Level in 2016, and a meagre 600 of these were female. To really change perceptions and address the gender-imbalance in the industry, the government needs to impose increased primary and secondary education focus on tech and STEM. If we are to meet the nation’s demand, we should be aiming for a tenfold increase of students studying computer science over the next five years, with females making up at least 30%.
I have a passionate belief in the UK’s ability to grow and develop world leading businesses; however, as UK-born companies pursue growth, they have no choice but to look further afield in the search for the talent they need to meet their customers’ demands. Only by getting young people interested in and studying technology subjects will we avert this crisis, and cement the UK’s rightful position as a future global tech hub.
