The pandemic has brought sections of the creative industry to a halt, but also accelerated structural changes within the industry, such as the transition towards digital platforms and a greater role for individual ‘content creators’.

The pandemic has impacted the creative industries asymmetrically. Segments dependent on live audiences and cross-border travel, such as performing arts, theatre and cinema, were hard hit by social distances measures, while digital creative industries boomed. Europe’s performing arts sector lost 90% of its revenue, while its music sector registered a 76% decline.3 The sector also suffered from low state welfare provisions, as most creative industry workers are self-employed or freelancers and therefore not always eligible for job protection policies put in place. In Europe 32% of cultural sector workers are self-employed and lack job protection, a total of 7.3m jobs in the sector at risk, representing 3.7% of total EU employment.4 The pandemic has also accelerated the digital transition of the sector, highlighting the centrality of digital technology for economic resilience. Quickened innovation in digitalisation and technology, as live performance shut down has given rise to streaming platform as well as unique digital creative assets built on the blockchain, like non-fungible tokens (NFTs). Growth has been notable in digital publishing, with the UK seeing a 37% increase in audio downloads, and a 24% increase in digital book downloads.5 The shift to online sales favored players that already had an established online presence, as well as those who swiftly adapted. This is seen to favor the advertising sector, which is forecasted to a strong recovery in 2021 in the UK, increasing to £29bn in 2022.6 This is largely attributed to the digital shift.

The digital transition shift has given birth to new producer tools, new distribution and dissemination platforms and the rise of the ‘creator economy’. These have profound implications for the sector’s growth, development and international trade. The music streaming and video on-demand revolution has established a new market and increased competitive tensions between players. On-demand video grew by 31% in 2020. There are now 1.1bn online video subscribers online, up 26% from 2019.7 The rise of the ’creator economy’, aided by the emergence of a growing range of tools allowing the production of high-quality content with minimal financial requirements, has also given birth to new forms of revenue in the creator space. One fifth of companies surveyed in a 2019 poll spend at least half their marketing budget on influencers.8, is a niche market that is growing rapidly. The rise of TikTok, for example, has generated US$20bn in sales from China in 2020 and forecasted global sales of US$40bn in 2021.9 

Crucially, as a highly globalised, employment-intensive sector with a significant growth potential, creative industries are an important part of rapid and inclusive post-pandemic recovery. One study estimated that creative industries contributed 4.5% to US GDP – more than construction, transportation, mining or agriculture – and can significantly improve, not merely reflect, the health of the economy following a downturn.10 The creative sector offers economic diversification and can rapidly recover from a downturn, without being impacted by other slow growing sectors, or external volatility. As recognised by the UN, the creative economy has the potential to support developing and transition economies in diversifying production and exports and to deliver sustainable and inclusive development.11

Alongside professional services, it plays a pivotal role in the modern economy and international trade flows. The Covid-19 pandemic significantly disrupted the industry that was already being reshaped by the effects of the global financial crisis, sustainability drive and digital innovation. Digital transformation, changing customer preferences and regulatory pressures, are also challenging existing business models in financial and related professional services.

Despite entering the pandemic more resilient than it has been prior to the previous crisis, and stronger than expected performance in 2021, the global banking sector may register losses as a result of the pandemic over the next years. These will show in the form of credit losses, with defaults expected to soar as state support is withdrawn. One estimate forecast the industry’s loss in revenue at US$3.7trn over the next five years.1 Moreover, the uneven nature of the post-pandemic recovery will hit some regions and sectors harder than others. There is limited scope for wider margins in developed markets, with interest rates low and financial services utilisation high. In developed economies there is much greater space to reach new customers, despite the increase in credit risks.2 Digital technologies are restructuring the way financial services are provided, the competition dynamics and how the customers interact with the industry. The rise of financial technology (fintech), blockchain and artificial intelligence companies, are threatening traditional providers of financial services through increased competition. Challenger neobanks (digital-only providers) and telecom providers are gradually increasing their share in the market, both in terms of processes and services offered to customers. Traditional providers that struggle to shift activities to digital channels risk losing market share and the ability to reach new customers. In 2018 fintech companies already accounted for 38% of unsecured personal lending in the US, while they are “economically relevant” in SME financing in China, the US and the UK, according the Bank for International Settlements (BIS).3 

Digital currencies have increasingly become the focus in central banks around the world amid growing government, business and consumer interest. A Central Bank Digital Currency (CBDC) would allow central banks to issue electronic money available to all households and businesses, allowing them to make payments in CBDC. A report from the Bank for International Settlements highlighted that 28% of 50 central banks surveyed were looking into CBDC interoperability.4 Of the major world economies, China is thought to be the most advanced CBDC testing, with the e-CNY digital yuan expected to launch in 2022.5 CBDCs could bring wider access, stronger governance and privacy standards to digital payments systems, currently dominated by cryptocurrencies such as Bitcoin.

There is also growing consensus that financial services actors need to upgrade their agenda towards climate finance, as net zero cannot be achieved without the funding needed to mitigate the physical risks of the impact of climate change. Global climate financing was estimated to have reached up to US$620 in 2019, the bulk of which through debt issuance. Financing a transition to a climate-resilient economy will require much greater investment than is currently being committed, and failure to provide it will result in even more investment for climate adaptation and mitigation in the longer term. Estimates suggest that US$100-150trn will be needed to reach the 1.5-degree target by 2050.6

The growing prominence of institutional and private investment in climate financing has prompted regulatory efforts to drive climate related activities. Regulation is responding to market developments with new tools, such as green bonds, and shaping the disclosure requirements through the launch of the Taskforce on Climate-related Financial Disclosures. However, more needs to be done to incentivise climate financing and the financial services industry has a vital role in facilitating the tools and mechanisms that will help address climate change.

Whilst the immediate effects have been severe, the pandemic has further accelerated trends that are reshaping the global investment landscape, such as the push for digital, sustainable and resilient solutions in a world that has turned more fragmented. Estimates suggest that in 2020 global trade in goods fell by 8%, while foreign direct investment (FDI) flows fell by a record 35% to US£1trn, the lowest figure since 2005.1 2 The retraction in global cross-border investments was more severe in developed economies, where FDI inflows and outflows fell by almost 60%. On the other hand, developing economies saw FDI inflows and outflows fall by only 10% largely due to resilient flows in Asia, particularly in China and India.3 

During the pandemic the internationalisation of major multinational enterprises (MNEs) stagnated, although the degree of this effect varied considerably across industries. The value of announced greenfield investment fell by 33% to a record low of US$564bn, cross border M&A investment fell by 6% to US$475bn while project finance deals registered a 42% decline to US$367bn in 2020.4 The UNCTAD forecasts suggest global FDI flows have recover some ground in 2021 and return to pre-pandemic levels (2019) in 2022. Developed economies are expected to drive the growth in FDI, particularly in M&A activity and public investment support. These measures will have a positive effect on infrastructure, green, and digital economy sectors.5

Over the past two decades, the increasing investment in services, enlarged pool of cross border investors and the focus on emerging technologies have shaped the global investment landscape. The gradual servicification of manufacturing and the rapid rise of global digital technology companies have driven an upwards trajectory for investment in services. Services accounted for 60% of announced greenfield projects and 71% of announced cross border M&A deals in 2020.6 The sources of the investment flows are also becoming more diversified, with the emerging markets accounting for almost one fifth of global M&A deals by value and almost half the total value of global greenfield and international project investment in 2020.7 State-owned investors (SOIs), including largely emerging-market-located sovereign wealth funds (SWFs) have also become prevalent in the investment landscape with a growing appetite for alternative asset classes and active investment strategies.

As the global economy recovers from the pandemic, major forces ranging from emerging technologies, investment policy sustainability and geopolitics will reshape the pattern of the global investment landscape. FDI regulations and policies, already gaining traction prior to the pandemic, have been deployed by national governments to address supply chain vulnerabilities and the risk of predatory takeovers of strategic sectors. The number of investment policy measures adopted in 2020 rose by 40% compared to 2019, with the ratio of restrictive policy measures to liberalisation measures increasing by 41%.8 

GVCs will also adopt new modes of business operation to enhance resilience, flexibility and uncertainty of considering the current global business environment. This could involve elements of reshoring or regionalisation for businesses, while governments are expected to gear up efforts to increase sustainability of business operations through integration of environmental, social and governance standards into regulatory frameworks for foreign investments and capital markets. Geopolitics and the changing geography of global demand will impact the international investment as developing countries continue to deepen their participation in global investment flows and tension remains high in the rivalry between the US-China.9