With 2010 behind us, it’s time to look to 2011. So what can we expect for the year ahead? I tip my top predictions here.

In the US economic growth and inflation are going to be higher than expected.

The US tax package compromise enacted in the final days of 2010 has significantly increased our outlook for the US economy for 2011.

We lift our growth outlook for 2011 from 2.3 per cent to three per cent. This is strong enough to generate a fall in unemployment. Although the extension of the Bush tax cuts was expected, it is the reduction in payroll tax and the provision for extra business spending which has the major impact on generating additional growth.

A better outlook for growth in 2011 means a better outlook for corporate earnings, which in theory will translate into solid share market performance in calendar 2011.

We expect the oil price to rise and for commodities to continue the ascent.

In Australia, property prices and valuations in retail IE Property Trusts will come under downward pressure as retailers continue to struggle to pay their rent.

As rents come down so will yields and asset values.

We are in stage one of the Internet and cyber terrorism will increase and cloud computing will increasingly hit the mainstream.

India and China will continue to grow, with some dips along the way.

Water shortages will become more commonplace around the world.

Agriculture prices will see upward pressure – grain prices have significant room to move, and any shortfall in production will see upward price shocks. We expect to see declining inventories and growing world demand.

It looks to me that we are looking at a changing economic cycle ushered in by the Global Financial Crisis as the dominant way of doing something can change significantly during downturns, and for business it is very much a case of 'evolve or perish'. For example, General Electric is the only company still standing of the 12 that listed on the newly formed Dow Jones Industrial Average of the New York Stock Exchange in 1896. Another stayer is the computer giant IBM, but to achieve its unusual longevity it has had to reinvent numerous times to adjust to each new wave. It is currently in the process of doing so again.

The Economist Joseph Schumpeter described this as 'creation destruction'. Or, as Chris Papenhausen puts it, this is “the notion that new products and processes, in part, are based on the death of old products and processes”.

James Moody and Bianca Nogrady noted in their excellent book titled The Sixth Wave that while these downswings result in economic depression, the situation is far from depressing – this period is actually a time of great opportunity.

In between the waves of innovation, a great deal of change can occur. The old ways of doing things gradually become obsolete, institutions and structures that have stymied innovation by clinging to the status quo weaken, and methods once considered traditional and therefore sacrosanct are finally challenged.

The situation can become quite turbulent as the technological advances that built and sustained the previous wave start to grow stale and limited. But while a turbulent environment can cause some linkages to be redundant, it also creates an opportunity for new and exciting linkages to form.

These new linkages give rise to innovation. New combinations of concepts, resources and technologies can bring surprising outcomes. Sometimes these linkages form between quite unexpected entities, creating even more opportunities for innovation in directions that might not have been thought of before.

For example, when you join a mobile phone together with a digital camera, you don't just get a phone that can also take pictures – you have created a device that can send photo messages around the globe.

They note in the passages of the book that in Nikolai Kondratiev's (the Russian economist) and Joseph Schumpeter's original thinking, each wave lasted around 50 or 60 years. These long timeframes were due to factors such as the long life of investments in infrastructure and the time it took for economies and societies to evolve, known as ‘institutional inertia’.

However, things are now speeding up, and while the information and communication wave has only really had thirty years of life so far, all the indications are that we are in a period of transition.

As they ask, could it be that we are experiencing the downswing of the fifth wave of innovation – and witnessing the birth of the sixth wave?

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