Effective regulation worth €850bn in EU GDP over 15 years
- Financial services industry provides 6.4m or 3% of jobs in Europe
- The sector generates €731bn in Gross Value Added (GVA) – 5.9% of EU GVA
- EU has a €72bn trade surplus in financial services
- The difference between a difficult regulatory environment and a supportive one could be 11 million jobs.
New research carried out by PwC on behalf of the City of London Corporation highlights the importance of effective financial sector regulation in maintaining sustainable growth across the whole economy. The report “Where Next Europe: The future of European Financial Services”, to be launched on 21 May, used a model showing that a harsher regulatory climate could result in 11 million fewer jobs being created by 2030, with this lack of growth felt largely outside the FS sector – 8.7 million or 79% of these jobs. A supportive regulatory climate, by contrast, could increase overall EU GDP by €850bn over the next 15 years and support job creation in construction, manufacturing, services, and retail.
Currently the FS sector provides jobs for 6.4 million people in the EU, and generates further output and employment in other sectors. The report underscores these strong links between the FS sector and the wider economy – the model shows that an increase in FS GVA of €1bn is associated with a rise in GDP for the whole economy of around €2.3-3bn. The FS sector purchases around €316bn in goods and services from other sectors, particularly professional services, computer programming, telecoms and postal services and is a key source of demand in these areas.
However, the research showed that growth is hampered by lower profitability and the cost of addressing historical issues. Growth in the sector has therefore stalled since the crisis, making it increasingly challenging for banks to perform critical roles such as household and business lending.
The research modelled how different regulatory scenarios might affect the profitability of the industry over the next five, ten and fifteen years to show the impact an effective regulatory environment could have on growth. The first scenario assumed a supportive regulatory environment with substantial growth at a more sustainable rate than in 2007. The second assumed a more challenging regulatory environment, with associated slower FS growth. In scenario 1, the EU GDP grows by 1.8% annually over the next 15 years; in scenario 2 it grows by 1.5%. Total EU GDP in scenario 1 is €201bn bigger by 2020, €458bn bigger by 2025 and €850bn bigger by 2030. The size of the FS sector (in GVA) is €85bn larger in 2020 in scenario 1, €172bn larger by 2025 and €275bn larger by 2030.
Speaking at the European Capital Markets Union conference as the report was launched, Chairman of Policy & Resources Mark Boleat said:
“The provision of a well-functioning financial system is critical for growth as both a supplier of services and a source of demand for other sectors. This report highlights the opportunities European policymakers have to drive growth through the economy by designing and implementing regulations that enable the FS sector to grow in a sustainable way and in turn to support other sectors and to at the same time reduce the cost and probability of future crises.
“This report should not be seen as an attack on regulation – the industry needs to avoid an inward looking approach and embrace the opportunities of technology to maximise sustainable growth. This is all the more important when set against the landscape of weak economic growth in Europe. When wielded effectively, regulation works with the industry to achieve this and maintain the sector’s impressive trade surplus and job creation.”
Nick Forrest, Director and financial economist at PwC, commented:
“Our analysis suggests that the links between the financial services sector and other sectors across the EU economy are strong. This shows the important contribution the sector makes to the EU economy, but also highlights the profound effect that financial services regulation or changes in financial services performance can have on non-financial services businesses.
“Following the focus on improving bank resilience and stability in recent years, policy makers, regulators and the financial services sector itself now need a collective vision of how to return the sector to a sustainable growth, which will benefit the whole economy.”
Notes to editors
This report is the third in a series of three by PwC looking at growth in the UK, its regions and now Europe. Mark Boleat will be speaking about the issues raised in the report at the “European Capital Markets Union Forum”, which is being run by City & Financial on Friday 22 May. His speech will be open to the media.
Mark Boleat is available for interview on Wednesday 20 May from 3.30-5.30pm
Bella Longman, Media Officer, City of London Corporation
Tel: 020 7332 1906 / Mobile: 07809 334 327
Katherine Howbrook, Media Relations Manager, UK Financial Services, PWC
Tel: 020 7212 2711 / Mobile: 07595 609737
About the City of London Corporation
The City of London Corporation provides local government and policing services for the financial and commercial heart of Britain, the 'Square Mile'. In addition, the City Corporation has three roles: (1) we support London’s communities by working in partnership with neighbouring boroughs on economic regeneration, education and skills projects. In addition, the City of London Corporation’s charity City Bridge Trust makes grants of more than €15 million annually to charitable projects across London and we also support education with three independent schools, three City Academies, a primary school and the world-renowned Guildhall School of Music and Drama. (2) We also help look after key London heritage and green spaces including Tower Bridge, Museum of London, Barbican Arts Centre, City gardens, Hampstead Heath, Epping Forest, Burnham Beeches, and important ‘commons’ in south London. (3) And we also support and promote the ‘City’ as a world-leading financial and business hub, with outward and inward business delegations, high-profile civic events, research-driven policies all reflecting a long-term approach. See www.cityoflondon.gov.uk for more details.
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