The winning and losing nations or Sunrise Sunset

The winning and losing nations (or Sunrise, Sunset and Serendipity – time to start dropping BRICs) Sixth Gresham Lecture Douglas Mc. Williams Mercers School Memorial Professor of Commerce at Gresham College Centre for economics and business research ltd Unit 1, 4 Bath Street, London EC 1 V 9 DX t: 020 7324 2850 f: 020 7324 2855 e: advice@cebr. com w: www. cebr. com

Objective To examine which countries are likely to perform relatively better in the changed world and which ones are likely to perform relatively worse © Centre for economics and business research ltd, 2013 2

Overview The context – previous lectures in the series Sunrise and sunset cycles Time to start dropping BRICs Sunrise economies Sunset economies Serendipity economies Outlook to 2050 The 2013 Budget © Centre for economics and business research ltd, 2013 3

The sunrise cycle Cheap educated labour Strong productivity growth High investment © Centre for economics and business research ltd, 2013 Export growth leading to rising GDP High profits 4

The sunset cycle Costs cannot compete Stagnant productivity Falling investment © Centre for economics and business research ltd, 2013 Weak exports leading to weak GDP Profits squeeze and loss of tax 5

The misery cycle Competitive wage below welfare level Higher taxes and reduced public services Financial collapse © Centre for economics and business research ltd, 2013 Collapsing employment and GDP Escalating deficits 6

Time to start dropping BRICs Concept has been very helpful in boosting understanding of globalisation process But increasingly the BRICs economies are becoming too diverse for one category And it mixes those with internal dynamic growth with those who just got lucky with high energy or mineral prices At the moment with energy and minerals prices high, both groups have had rapid growth in spending power But in the future, these prices – though on average rising – will not rise further by as much and energy prices could even drop beyond 2020 © Centre for economics and business research ltd, 2013 7

The world economic league table 2012 -2022 © Centre for economics and business research ltd, 2013 8

Sunrise economies China India Indonesia Korea Mexico Turkey Taiwan Thailand Nigeria Sri Lanka © Centre for economics and business research ltd, 2013 9

Sunset economies US Japan Europe © Centre for economics and business research ltd, 2013 10

Serendipity economies Russia Brazil Canada Australia Saudi Arabia © Centre for economics and business research ltd, 2013 11

Ethnic composition of US population forecast for 2050 2005 2050 Foreign born 12 19 White 67 47 Hispanic 14 29 Black 13 13 Asian 5 9 Source: Pew Research Centre © Centre for economics and business research ltd, 2013 12

World outlook for GDP for large economies Billions of US dollars, current prices at market exchange rates © Centre for economics and business research ltd, 2013 13

The main Budget measures Some cuts in current spending (may be more than seems because of need to absorb higher NI charges) Extra spending on infrastructure Housing market package Rise in personal allowance for income tax Cut in corporation tax NIC allowance for expanding small businesses Potential major monetary policy reforms Revised inflation remit for MPC © Centre for economics and business research ltd, 2013 14

Unrealistic hopes of a quick Eurozone recovery persist Eurozone real gross domestic product, annual percentage change © Centre for economics and business research ltd, 2013 15

ECONOMIC OUTLOOK OBR still looks too optimistic on growth in the medium-term UK real gross domestic product, annual percentage change © Centre for economics and business research ltd, 2013 16

PUBLIC FINANCES Borrowing in 2017/18 to be £ 30 billion higher than forecast by the OBR… Public sector net borrowing, £ billion, financial year © Centre for economics and business research ltd, 2013 17

PUBLIC FINANCES … with the debt: GDP ratio rising above 90% Net debt as a percentage of GDP, fiscal years © Centre for economics and business research ltd, 2013 18

ECONOMIC OUTLOOK £ 10, 000 personal allowance to boost real disposable income growth Income tax (£) paid by someone with a gross yearly income of £ 25, 000 3 500 3 400 3 300 3 200 3 100 3 000 2 900 2 800 2012/13 © Centre for economics and business research ltd, 2013/14 2014/15 19

PUBLIC FINANCES Corporation tax rate reduced even further UK corporation tax - main rate © Centre for economics and business research ltd, 2013 20

PUBLIC FINANCES Small businesses to benefit from employment allowance Number of enterprises by employment size, 2011, thousands © Centre for economics and business research ltd, 2013 21 21

PUBLIC FINANCES Help to buy scheme launched to support new and existing home purchases Approvals of loans for home purchases, thousands © Centre for economics and business research ltd, 2013 22

MONETARY POLICY New MPC remit could pave the way for medium-term interest rate commitments Bank of England Bank Rate, percentage © Centre for economics and business research ltd, 2013 23

MONETARY POLICY Long term borrowing rates to rise but remain extremely low Yield on 10 year government bonds, percentage Forecast © Centre for economics and business research ltd, 2013 24

The winning and losing nations (or Sunrise, Sunset and Serendipity – time to start dropping BRICs) Douglas Mc. Williams, Mercers’ School Memorial Professor of Commerce at Gresham College and Chief Executive of Cebr