The post-pandemic economy could well be defined by the return of robust aggregate productivity growth after 15 years of relative sclerosis. Between the increased availability of powerful new technologies and aggressive fiscal policies, the stars are aligned for a cascading sequence of rapid recovery around the world.
FORT LAUDERDALE – A multispeed economic recovery is underway, reflecting the significant cross-country variations in containing the coronavirus and acquiring and administering vaccines. But notwithstanding these differences in timing, there will soon be a cascading sequence of rapid recoveries around the world.
Sectors that had to shut down because they could not function without unsafe human-to-human proximity will now (or soon) reopen. Businesses that survived the pandemic closures (many with support from fiscal programs) will experience rapid expansion, powered by pent-up demand. Growth rates will surge for a limited period of time before subsiding toward normal levels. We will enter the post-recovery world sometime in 2022 (though it will come sooner for some than others).
For investors, policymakers, businesses, and households alike, a major question is whether and to what extent we will return to pre-pandemic growth patterns. Will we witness a shift to some markedly different set of dynamics?
While there are many areas of uncertainty in the post-recovery economy, some industries seem poised for a period of extraordinarily rapid growth. Specifically, in sectors with a combination of technological possibilities, available capital, and high demand for creative new solutions, conditions will be highly favorable for investment and new company formation.
Among the broad sectors with the greatest growth potential, my three leading candidates are the application of digital technologies across the entire economy, biomedical science (and its applications in health care and beyond), and technologies that address the various challenges to sustainability, especially those associated with climate change. Elevated growth in this context means not just sector growth, but high levels of entrepreneurial activity and innovation, a plethora of new fast-growing companies, and large inflows of capital carrying higher expected rates of return.
These areas are distinct but overlapping, because they are defined more by science and technologies than by outputs. All three are viewed as key sources of resilience – for businesses and for society as a whole – and that perception has been reinforced by the pandemic and growing awareness of the effects of climate change. Between this changing outlook and the forced adoption of digital technologies during the pandemic, there is now a heightened awareness of both the opportunity and the necessity of digitalization, which is reflected in high and rising demand for technological solutions.