A PwC Economics and policy view on the world in 2014
27 January 2014
Economics and policy issues can help shape the fortunes of organisations in the private and public sector, in the UK and overseas, large and small. We’ve focused our predictions on five over-arching themes and hope they provide some stimulus, and challenge, when thinking about where and how to grow profitably.
1. A world economy in transition
This year, we predict that the main drivers of the global economy will change, as we expect advanced economies to contribute about 40% to global GDP growth. This improved prospect of growth in western economies would lead to higher demand for core commodities such as oil, driving a rise in prices.
In terms of infrastructure development, emerging markets will take centre stage. We predict that in 2014, large Western Europe countries will continue to lag further behind the rest of the developed world in areas such as fibre development and growth in air travel. For example, we expect Dubai to overtake Heathrow in terms of airport passenger numbers to become the 3rd busiest world airport.
2. The legacy of the financial crisis
Stronger economic growth in advanced economies will prompt policymakers to focus on the pace of the withdrawal of unconventional monetary policy. However, we expect that interest rates will still remain at low levels, which will help to restore the banking sector.
On the other hand, European banks will face a substantial capital crunch in 2014 through the combined impact of several regulatory requirements. These regulations could further drive banks to expand in financial hubs away from Europe such as Hong Kong, Shanghai and Singapore.
3. Digitally-fuelled growth
Competition will also intensify between network providers as they try to attract more mainstream users, which will lead to 4G price premia disappearing. But investment in cycle lanes will ensure that some more old fashioned technologies will endure.
4. New forms of commissioning, management and delivery in the UK public sector
Scrutiny and transparency will remain the key focus in the management and delivery of the UK public sector. Last year saw many health trusts failing to meet delivery standards, prompting an increased focus on the shared health economy. This year, more hospitals will be under review as the Care Quality Commission continues to strengthen its inspection. The international aid and water market will also start to face pressure in terms of increased transparency and better communication of its operations and impact.
The Government will come under increased pressure to consider their investments in infrastructure on a long-term, transparent and rigorous basis. At the same time, as anxiety about security of energy supply continues to grow, UK regulators and energy providers will need to address greater operational challenges as well as respond to heightened public concern over competition in the market.
5. Further evolution of regulatory structures and policy frameworks
In 2014, market reform will take the form of the implementation of the regulatory structure and policy. Examples include the PR14 in the water sector, the Electricity Market Reform, as well as regulation in the financial sector in terms of capital and leverage ratio requirements.
2013 marked tipping points and important events across many industries and economies. Our predictions may form a medium term picture of what the world may look like, but many of these themes follow through into the long term. They also form the basis for what we think this year may look like.
We’ve also taken a look back at some of the things we got right (and wrong – yes, we do admit when we didn’t make the right call) last year, explaining what happened.
 Basel III capital ratio requirements, Leverage Ratio requirements, the ECB Comprehensive Assessment, and possible further national regulatory discretions.
 Digital natives refer to the generation who were born during or after the general introduction of digital technologies and through interacting with digital technology from an early age, has a greater understanding of its concepts.
 personal laptops, mobile phones, tablets and connected TVs, as well as various devices that they may use for work