This naturally impacted the financial health of the corporate sector, and business failure rates rose to levels comparable to those of the early 1990s. These economic trends, combined with the discovery of egregious shortcomings in corporate governance, fuelled misgivings about stockmarkets. And amid a global bear market, equity volatility soared. Consequently, as in 2001, capital market business in the broad sense of the term - securities, mergers and acquisitions, and the fees and commissions charged for these activities - were adversely affected. 1.2  Despite an unfavourable climate in 2002, French credit institutions reported net income on a par with 2001. French credit institutions reported net income of 17.7 billion euro in 2002, the same as in 2001. This works out to a return on equity of 9.4 per cent for the industry as a whole. As in previous years, these results were largely attributable to retail banking business in France. Consumer credit and home loans continued to grow, along with specialised financial services. In addition, falling interest rates had a positive effect on interbank business - which in France has always been significant - and drove down the net expense on these transactions. By contrast, capital market activities and asset management were hit by financial market turbulence, giving rise to substantial provisions in some cases. Furthermore, for the second year running, fees and commissions contracted as a percentage of net banking income, falling to 26 per cent compared with nearly 30 per cent in 2000.
To sum up the impact of the four key drivers of growth, deleveraging and demographics are quite unambiguously a dampener while energy appears a benign force. The long term trend for productivity is hard to predict. But even assuming a generally optimistic prognosis for productivity, it is quite likely that global growth in the next 20 years is likely to be lower than in the last 20. This means that returns from financial investments are also likely to be lower in the next 20 than in the last 20. Safeguarding long-term returns The modest outlook for long-term economic growth presents a major challenge for government funds to close the widening gap between their financing needs and investment returns. •  On the liabilities side, population ageing in the advanced economies will increase pension claims and place a heavier burden on social services such as healthcare. •  On the assets side, slowing global economic growth will constrain investment returns. There are three ways to narrow this mismatch between trends in assets and liabilities: •  The first is to reduce financing needs by lowering social expenditures or increasing fiscal revenues. Both are politically difficult to do. •  The second is to reach for yield by taking on various combinations of higher leverage, longer duration, and greater credit and liquidity risks. But the public perception and character of government funds limit their scope for aggressive risktaking.