UK: Deloitte Monday Briefing: Don’t Bet Against The Growth Escalator

Last Updated: 25 June 2013
Article by Ian Stewart

Most Read Contributor in UK, August 2017

The Monday Briefing, written by Ian Stewart, Deloitte's Chief Economist in the UK, gives a personal view on topical financial and economic issues.

  • The Global Financial Crisis has contributed to a mood of pessimism about the ability of industrialised economies to deliver rising living standards. Parents worry about the lack of opportunities for their children and the risk that they face static or declining standards of living.
  • Such concerns have clearly been shaped by the major squeeze on households of the last five years. But are such conditions really likely to persist for many years to come? 
  • Certainly history suggests that deep financial crises cast a long shadow, depressing growth for a number of years. Yet, in time, economies bounce back, sometimes with renewed vigour.
  • The US economy contracted by a massive 27% in the Great Depression. By 1938, five years after the trough of the Depression, the level of US GDP was only marginally higher than it had been ten years earlier. In the next ten years, to 1948, US GDP doubled; it doubled again over the following 20 years. Today the US economy is thirteen times as large as it was in 1938.
  • Warren Buffett famously takes a long view of investing. His strategy is based on the view that, in the long term, the US economy will keep growing. Earlier this year he wrote, "investors and managers are in a game that is heavily stacked in their favour...I believe it is a terrible mistake to try to dance in and out of it based upon...the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it".
  • The data support this view. From 1986 to 2011 real US GDP rose 94%. Incomes rose far more slowly and the gains of growth were heavily skewed towards higher earners. Nonetheless, median real income in the US rose 21% over this period.
  • Over the same period UK GDP rose 91% and median real incomes rose 62%.   
  • Looking across the world's top 29 industrialised nations, the OECD found that real incomes rose an average of 1.7% a year from the mid-1980s to the late 2000s. At this rate of growth living standards double every 40 years.
  • Of course, the benefits of GDP growth in the West have not been evenly distributed in the last few decades, with much of the improvement going to high earners and to profits. As a result, income inequality has risen.
  • Yet even for those in the bottom 10% of the income distribution in the industrialised world, incomes have risen by an average of 1.4% a year since the mid '80s. Only in Japan and Israel have the incomes of the lowest paid declined.
  • We are unlikely to see a quick return to the heady, pre-crisis rates of GDP and income growth in many countries. But growth is coming back and, with it, incomes will rise. The notion that living standards in the West will stagnate for many years to come is betting against history and human ingenuity.


UK's FTSE 100 ended the week down 3.1% following signs that the US Federal Reserve could moderate its quantitative easing programme.

Here are some recent news stories that caught our eye as reflecting key economic themes:


  • The Chairman of the US Federal Reserve Ben Bernanke said it "may be appropriate to moderate" its monthly $85bn purchases of assets later this year if the economy grows as expected
  • The European Union (EU) and the United States announced plans for a free trade deal potentially worth hundreds of billions of pounds, aimed at boosting exports and growth
  • José Manuel Barrosso, president of the European Commission, called France "culturally extremely reactionary" for refusing to include their film industry in talks about the proposed EU-US free-trade agreement
  • Global fish prices hit a record high in May, up 15% from 2011, driven up by China's growing demand for high-end species such as tuna and oysters
  • UK retail sales rose by a greater-than-expected 1.9% in May, compared with a year earlier, largely driven higher by internet shopping.
  • UK consumer price inflation (CPI) rose by a greater-than-expected annual rate of 2.7% in May, driven higher by the cost of air travel, fuel and clothing
  • Business activity hit a 15-month high in the eurozone in May according to purchasing managers' data, despite private sector activity still being in contraction
  • Japanese prime minister Shinzo Abe used a speech in London to defend his governments three-pronged policy of monetary easing, fiscal stimulus and pro-growth measures – dubbed "Abenomics" – saying that "Abenomics represents a win-win" for both his country and the global economy
  • Television producer ITV Plc completed to £19m acquisition of a 65% stake in American television producer Thinkfactory Media; its seventh acquisition in under a year
  • 49% of the books read by children in a new national schools reading competition were read online according to literacy charity Booktrust
  • UK banks have been told to find an additional £13.4bn of capital this year by the Bank of England's new banking regulator The Prudential Regulation Authority, on top of previously announced balance sheet-strengthening measures
  • Chinese property group Wanda announced it is to build a five-star hotel in London, its first hotel outside China, following confirmation of £300m purchase of UK yachtmaker Sunseeker
  • Germany used their veto to block the start of EU membership talks with Turkey, in light of the Turkish government's crackdown on mass demonstrations in the country
  • A Greek court ruled that state broadcaster ERT, which was shut down by the government last week – triggering mass protests, can resume transmissions
  • The German Bundesbank predicted the German economy will "grow strongly in the second quarter of 2013", having narrowly avoided recession with 0.1% growth in the first quarter
  • A New York company filed a lawsuit against Warner/Chappel Music Inc, after finding that they faced a $150,000 penalty for using the song "Happy Birthday to You" without permission in a documentary about the song – birthday suit

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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