It was a hell of a story, a beautiful dream. But it was also a great and fatal illusion. The world economy was on a sustainable growth path – this was the opinion of the majority of managers and company owners, it was the view among bankers and economists. A high, growing, inflation-free growth of 4 – 5% per annum was possible, globally! Finally, major parts of the world population would leave poverty behind them.

Only a few warned against the illusion of super-capitalism. But nobody wanted to listen to the risks: too high indebtedness, too steeply rising real estate prices, too low interest rates of the central banks, the big global imbalances. For too long, the world drove full speed in the wrong direction. That’s why we are experiencing a centennial crisis, not a normal depression.

And now?

Now, companies and individuals, governments and central banks, have to revise their expectations for the future downwards. With hindsight we are finding out that the opportunities for the world economy to expand have been overestimated systematically. Looking back, the global boom in recent years dissolved into a growth illusion. This is not really surprising. We already saw last year clear signs of overheating when food, energy and other raw material prices dramatically increased. And even now, in the middle of the deepest crisis, raw material prices are already moving up again. This is a blatant sign of fundamental shortages – in minable raw materials, arable land, clean water – are holding back the economy from growing. And there are other factors that are dampening potential growth: the financial crisis which limits the availability of credits, the financial infrastructure that is shrinking, the much bigger influence of the governments which undermines dynamism, the aging societies which are already throwing a shadow on Europe, Japan and North America. There is no doubt that the global growth path will be much flatter than expected so far.

We are experiencing the morning-after awakening from a dream of endless growth and expanding wealth. The citizens of developing nations are now realizing that they are not as rich as they thought they were. And even the rich countries are running the risk of getting involved in unpleasant problems.

There are the problems of inflation and deflation. Given the state of the world economy today, deflation is a bigger problem and needs to be avoided (Peter Labrie drove this point home in his recent column). But inflation has to be watched closely as we move forward. The central banks will eventually have to undertake the tough job of mopping up access liquidity that has been pumped into markets in recent months.

And there is the problem of the indebtedness of nations. A less dynamic economy has more difficulties to outgrow its debts. Consequently, it will become more difficult for governments to consolidate their budgets. The high debts will put pressure on the fiscal positions. High unemployment rates and a low expansion of wages (if at all) will limit revenues. The possible escape routes are all bumpy: increase in taxes? - will further weaken growth; reducing government spending? - will be difficult to implement politically; inflation? – will undermine the trust in the value of money; a combination of all three options? – most probably.

There is no doubt that life with high growth illusions was more pleasant.

But having said this, it is also essential to realize that growth will be low in some sectors and will accelerate in others. This is the time for innovation and change. Those countries, sectors and companies that will harness the creativity of their people, invest in research and development and focus on knowledge industries will be ahead of the curve. Let’s look at some of the promising sectors:

Nano technology – the worldwide market is estimated at Euro 40 billion. Until 2015, this sector is expected to grow 15% per annum. Applications: unlimited.

Photonic – the global market volume is close to Euro 45 billion. The optical technologies will expand 8% per annum. Applications: laser, lighting technologies, photovoltaic products.

White biotechnologies – the present annual sales are reaching Euro 58 billion. The industrial usage of microorganisms will rise 10% per annum. Applications: bio-fuels, cleaning agents, textile technologies

Materials technologies – the development and application of new materials generates revenues of Euro 260 billion globally. This sector is expected to expand 5% per annum. Applications: wind power, electric and electronic applications / gadgets, sport equipment.

Ideas, innovation, investments, growth – and all this in 2009, the year of the super-crisis? It is like always in economic history: during the crisis the next upswing commences. Let’s go! Let’s be part of it.

For comments, contact schumacher@eccp.com.