10 April 2006

CoL report on Europe’s Wholesale Financial Services

The City of London Corporation issued a report on “The Importance of Wholesale Financial Services to the EU Economy 2006” stating that European policy makers have it in their power to facilitate the conditions for higher economic growth by ensuring that financial services markets’ liberalisation continues across the EU. The report shows how the EU contributes to over half of world trade in finance and insurance sectors but warns of a growing global challenge.

Researchers from the centre for economics and research (cebr) which undertook the study for the City found that EU wholesale finance is now worth 173 billion Euros, or 1.6% of the Union’s gross domestic product. In 1995, that figure was at 1.3%.

Unlike previous reports commissioned by the City, this one examines the contribution of the wholesale financial services sector to the EU in the context of the changing global economy and the report comes with a warning against complacency.

Because of faster domestic economic growth and a more flexible and integrated economy, wholesale finance in the US has outperformed wholesale finance in the EU over the past eight years. The report concludes this trend is likely to continue, unless the EU’s policies encourage faster growth in the sector.

It also examines the likely impact on the EU of the large emerging global economies. In real terms, China’s wholesale financial sector is growing at nearly three times the pace of the EU’s and now accounts for 4% of the world market.

The report discusses a number of scenarios for the future of the wholesale finance sector to 2020. A high growth scenario would enable EU wholesale finance sector growth to accelerate to an average 5.1% pa (compared with 4.8% pa during the period 1998-2005).

But the scenarios also contain a number of warnings. Under the base case scenario, reflecting current policy and economic structure, growth in the sector slows to 3.5% pa, and all other countries/regions considered outperform the EU. Other scenarios paint a bleaker picture, reflecting the potential introduction of inappropriate regulation and growing market protectionism.

Full report

© Corporation of London