2nd European Futurists Conference Lucerne, November 23, 2006
Global Growth Centres 2020 Challenges and choices for European policymakers
Stefan Bergheim
[email protected] www.dbresearch.com
Think Tank of Deutsche Bank Group
DB Research: Deutsche Bank’s Think Tank Analyses the economic, societal, political and technological environment of the DB group… … with a long-term perspective and interdisciplinary scope… … using a broad spectrum of concepts and tools… …and following a foresight approach, knowing that all forecasts are conditional Contributes to the strategy and decision-making of top management Intensively communicates with peers, plays an active role in public debate and strengthens DB’s brand Stefan Bergheim · 23/11/06 · page 2
Global Growth Centres 2020: Agenda 1. DBR’s Foresight Model for Evaluating Long-term Growth – Results: India, Malaysia and China the growth stars of 2006-20 – The four drivers: Population growth, investment, human capital, trade openness – The trends that will shape future growth – Significant heterogeneity in GDP growth across Europe
2. Challenges and choices for European policymakers – Formel-G’s point forecasts need not materialize – Focus on education, labour market, technology, trade etc. – Country-specific strengths and weaknesses
Stefan Bergheim · 23/11/06 · page 3
1.
DBR’s Formel-G
Deutsche Bank Research’s growth ranking Form el-G : Ranking of GDP grow th 2006-20 Rank 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32
Country GDP grow th India 5.5 Malaysia 5.4 China 5.2 Thailand 4.5 Turkey 4.1 Ireland 3.8 Indonesia 3.5 Korea 3.3 Mexico 3.2 Chile 3.1 USA 3.1 A rgentina 3.0 Spain 2.8 Brazil 2.8 Canada 2.4 France 2.3 Norw ay 2.1 New Zealand 2.1 A ustria 2.1 Portugal 2.0 UK 1.9 Sw eden 1.8 Greece 1.7 Denmark 1.7 Italy 1.6 Belgium 1.5 Germany 1.5 Finland 1.3 Netherlands 1.3 A ustralia 1.3 Japan 1.3 Sw itzerland 0.7 Russia No data f or education South A f rica A IDS prevents reliable f orecast
Stefan Bergheim · 23/11/06 · -1 page 4 So urce: Deut sche B ank Research
1
Deutsche Bank Research’s Formel-G “Foresight Model for Evaluating Long-term Growth” Asian economies lead the growth ranking: India, Malaysia and China GDP per capita Population grow th
% per year 3
5
Within the EU-15 range from 1.3% (Netherlands) to 3.8% (Ireland) average annual GDP growth in 2006-20
1.
DBR’s Formel-G
Formel-G: Foresight Model for Evaluating Long-term Growth Ultimate target
GDP
econometric equation GDP drivers
systematic selection by scope, impact, predictability, then clustering
Population growth
trend cluster 1
Investment ratio
Human capital
trend cluster 2
trend cluster …
Openness
systematic selection by theoretical and empirical relevance
trend cluster 6
(total of 21 trends incorporated in Formel-G, aggregated in 6 coherent trend clusters)
generally relevant GDP drivers derived through own data analysis, scientific literature
generally relevant societal, economic and tech trends derived through own screening, cooperation with other experts
Stefan Bergheim · 23/11/06 · page 5
1.
DBR’s Formel-G
Generate GDP forecasts until 2020 with Formel-G First stage: Extrapolation. Past development determines future course of each driver (exception: population growth, which uses UN data) Second stage: Cross-check. Correct extreme developments systematically (only required for investment ratio and human capital) Third stage: Trend analysis. The reliability of the forecasts is increased by modelling structural breaks and assessing a broad range of information (applied to all four drivers)
Calculate GDP forecasts using the econometric equation
Stefan Bergheim · 23/11/06 · page 6
1.
DBR’s Formel-G
Selecting the trends that will shape future growth Basis: 40 DBR trends from the five categories “The individual and society”, “Institutions and political environment”, “Organisational forms and markets”, “Innovation and technology” and “Natural resources” Likely to be significant for future economic growth => 21 trends. But too many possible links to the drivers Therefore we assessed the reciprocal effects among all 21 trends in a cross-impact matrix. The result is 6 consistent clusters
Stefan Bergheim · 23/11/06 · page 7
1.
DBR’s Formel-G
Deutsche Bank Research’s trend map Process virtualisation in networks
Opening of work and society Urbanisation rises
Links between humans and machines strengthen
Labour migration increases
Electronic networks become more pervasive and perform better
Global networking in business and politics
Career paths and work environments become more flexible Women gain more importance in employment
Virtualisation of organisational and market processes
Knowledge-intensive services gain in importance Transnational companies gain increasing importance
Services are increasingly provided across borders Markets are deregulated on national basis
Restriction of growth
Conquest of smallest structures
Potential for social frictions rises Threats from international terrorism increase
Natural resources become scarcer
Global institutions gain more influence
Biotechnology becomes central growth area Micro and nanotech. become important fields of innovation
Enlarging scope of life Regional economic cooperation and integration intensify Health sector grows
DB Research trend map The trends that will shape the global economy in the next two decades
The individual and society Organisational forms and markets
Stefan Bergheim · 23/11/06 · page 8
Populations are ageing
Institutions and political environment Innovation and technology
More trade in intellectual property rights and licences
Natural resources Trend cluster
1.
DBR’s Formel-G
Driver: Level of GDP per capita? Real GDP per capita in PPP
Conventional wisdom: “poor countries grow more strongly than rich ones”
USA Ireland Norway Canada Switzerland Denmark Australia Belgium Japan Netherland Sweden Austria Finland France Germany Italy UK New Zeal. Spain Portugal Greece Korea Argentina Chile Mexico Malaysia Brazil Thailand Turkey China Indonesia India
But no empirical evidence for assumption of absolute convergence. Will not use that idea Growth centres exist among rich and poor countries USA = 100 in 2002
0
Source: OECD und W DI
20
40
Stefan Bergheim · 23/11/06 · page 9
60
80
100
=> There is no automatism! Growth requires “hard” work
1.
DBR’s Formel-G
Population growth shows wide range of changes Population growth 2006-2020
Quantity of labour supply
Malaysia India
More people allow for higher levels of GDP overall
Turkey Ireland
Not really relevant for the individual (GDP per capita)
USA Thailand China Canada
Endogenous growth theories with scale effects refuted in reality
UK France Austria
Baseline forecast (UN) Add-on from trends
Germany Spain
Rapid growth in India and USA (partly immigration)
Sweden Japan Switzerland Italy -0.5
Shrinking population in Italy, Switzerland and Japan
% yoy, p.a. 0.0
0.5
Sources: UN, Deutsche Bank Research
Stefan Bergheim · 23/11/06 · page 10
1.0
1.5
2.0
1.
DBR’s Formel-G
Investment rates to decline from high level in China Investment ratio: Change 2005-20
Accumulation of physical capital boosts productivity of labour
Turkey India USA Japan
But: historical experience shows long-term ceiling of investment ratio around 30% of GDP
Canada Spain Thailand UK
Baseline forecast
Ireland
Add-on from trends
Switzerland Austria Malaysia Sweden
India to see increases from low level; China downward adjustment
Sorted by total change
France Germany China Italy
Spain and UK witness solid upward momentum
% -points -4
-2
0
Source: Deutsche Bank Research Stefan Bergheim · 23/11/06 · page 11
2
4
6
8
10
1.
DBR’s Formel-G
Rising human capital is a key reason for Asia’s growth Quality of labour input: Ability to generate and apply new knowledge
Years of education: Change 2005-20 India China Thailand Italy Spain Turkey Malaysia Ireland France Japan Austria Sweden UK Germany USA Canada Switzerland
Growth of human capital relevant for per-capita GDP growth (not: level of human capital) Baseline forecast Add-on from trends
% 0
10
Source: Deutsche Bank Research Stefan Bergheim · 23/11/06 · page 12
20
30
40
India and China see rapid growth from low levels Baseline shows near stagnation in Germany Our measure: average years of education of the population aged 25 to 64 (OECD)
1.
DBR’s Formel-G
Trade opening is second reason for Asian success Exchanging goods and ideas with other countries promotes learning
Openness: Total change 2005-20 Turkey China India
Increasing competitive pressure boosts efficiency of domestic companies
Spain Thailand Ireland USA Malaysia France
Change in openness leads to change in GDP
Baseline forecast
Canada Austria
Rapid opening in China and India is crucial for their strong GDP growth
Add-on from trends
Germany Switzerland Japan Sweden Italy
in points
UK 0.0
0.2
0.4
Source: Deutsche Bank Research Stefan Bergheim · 23/11/06 · page 13
0.6
0.8
1.0
1.2
1.4
Our measure: Foreign trade in % of GDP corrected for population and price differences
1.
DBR’s Formel-G
Centre of economic gravity moves to Asia Total GDP according to Formel-G in trn PPP USD of 1995
18 16 14
USA
12 China
10 India
8 6 4
Japan
2 Germany 1960
1970
1980
Source: Deutsche Bank Research
Stefan Bergheim · 23/11/06 · page 14
1990
2000
2010
China will close in on US GDP level by 2020 in PPP terms
0 2020
India to become thirdlargest economy around 2010, surpassing Japan Germany and Japan in relative decline
1.
DBR’s Formel-G
Still very low level of per-capita GDP in China and India GDP per capita according to Form el-G in '000 PPP USD of 1995
50
40 USA
Japan 30 Germany
20
China
10
China today = Japan 1960
India 1960
1970
1980
1990
Source: Deutsche Bank Research
Stefan Bergheim · 23/11/06 · page 15
2000
China’s level of GDP per capita is today roughly equal to that of Japan in 1960 – before Japan really started to conquer the global markets
2010
0 2020
DBR’s analysis suggests: - China and India will continue to narrow the gap - They will produce ever more sophisticated products
1.
DBR’s Formel-G
Major differences in income paths across the EU-15 GDP per capita in PPP 120
France
Austria 100
EU-15 = 100 Germany Spain
Korea
80
Portugal 60
Forecast from 2006 40 1975
1980
There is no common EU path. Heterogeneity rules
1985
1990
1995
2000
2005
2010
Sources: Groningen Growth and Development Centre, DBR
Stefan Bergheim · 23/11/06 · page 16
2015
2020
Austria and France keep pulling away from the EU-15 average Spain is rapidly closing the gap to Germany and will soon be ahead Portugal underlines that success is not guaranteed
Global Growth Centres 2020: Agenda 1. DBR’s Foresight Model for Evaluating Long-term Growth – Results: India, Malaysia and China the growth stars of 2006-20 – The four drivers: Population growth, investment, human capital, trade openness – The trends that will shape future growth – Significant heterogeneity in GDP growth across Europe
2. Challenges and choices for European policymakers – Formel-G’s point forecasts need not materialise – Focus on education, labour market, technology, trade etc. – Country-specific strengths and weaknesses
Stefan Bergheim · 23/11/06 · page 17
2.
Challenges and choices for European policymakers
Formel-G’s point forecasts need not materialise Societies have many opportunities to act. Examples: Governments can give priority to education Utilisation of available labour input can be changed Integration of older workers can be increased Women can gain more importance in employment Countries can take advantage of globalisation Output of the innovation system can be boosted Vulnerability to rising energy prices can be reduced
Stefan Bergheim · 23/11/06 · page 18
2.
Challenges and choices for European policymakers
Governments can give priority to education Government spending in Denmark, Sweden and Switzerland focuses on education
Diffe re nt sha res of e duca tion spe nding Public education spending as % of all public spending USA Norw ay Korea Denmark Sw itzerland Ireland
Education ranks low on the list of government priorities in Germany and Italy
Sw eden Canada Finland UK France
2000/02
Spain A ustria Netherlands Japan
Share in education spending has risen strongly in USA, Austria and Ireland since 1990
1990
Italy Germany 0
5
So urce: UN Human Develo p ment Ind icat o rs
Stefan Bergheim · 23/11/06 · page 19
10
15
20
Money is not everything: The structure of education systems matters; plus private initiative
2.
Challenges and choices for European policymakers
Past decisions determine trajectories of skill levels Population that has attained tertiary education in % by age group in 2004, sorted by change old -> young
50
%
55-64
45-54
35-44
25-34
45 40 35 30
In France and Spain new entrants into labour force are much better educated than old workers Stagnation in Germany (and the USA)
25 20 15 10 5 0 Korea France Spain
SE
Source: OEDC Education at a Glance 2006
Stefan Bergheim · 23/11/06 · page 20
Italy
CH
DE
Changes to education policy today will affect the economy with a long lag
2.
Challenges and choices for European policymakers
Utilisation of available labour input can be changed Large differences in hours worked
Hours worked per capita affected by participation rates, unemployment and workweeks
Hours w orked per person of the total population Canada Japan USA Sw itzerland Spain
Level of hours worked much higher in Japan and USA than in Europe
Greece Denmark UK Ireland Sw eden
2004
Finland
1995
Decline of hours in Germany and France continues to date
A ustria Netherlands Italy Germany France 400
500
600
700
800
So urces: Gro ningen Gro wth and D ev elo pm ent C entre, o wn calculatio ns
Stefan Bergheim · 23/11/06 · page 21
900
1000
Strong increase in hours in Netherlands and Spain over past 10 years
2.
Challenges and choices for European policymakers
Integration of older workers can be increased Employment rates of 55-64 year-olds range from 30% (Austria) to 70% (Sweden) in the EU
Different use of older people's potential Employment rate of 55 to 64 year-olds in % Sweden Switzerl. Japan Denmark USA
Sweden, Switzerland, Denmark and UK with high rates
Korea UK Canada Finland
2004
Ireland
1990
Austria, Italy, France and Germany with low rates
Netherl. Spain Germany France
Lisbon target of 50% needs to be raised over time
EU target
Italy Austria 0
20
Source: OECD
Stefan Bergheim · 23/11/06 · page 22
40
60
80
2.
Challenges and choices for European policymakers
Women can gain more importance in employment Nordic countries are leaders in integrating women
More women in parliamentary seats Share of women in parliament in percent Sweden Finland Denmark Netherlands
Japan and Italy are laggards
Spain Austria Germany Switzerland Portugal Canada UK
Rapid progress since 1990 in Austria and Spain
2006 1990
USA
Little progress in Italy (down) and France
Greece France Italy Japan 0 10 20 30 Source: United Nations Millenium Inidcators Stefan Bergheim · 23/11/06 · page 23
40
50
2.
Challenges and choices for European policymakers
Countries can take advantage of globalisation Inward foreign direct investment indicates how much influence foreigners have in the domestic economy
Huge increases in FDI investment Inward foreign direct investment, % of GDP Sweden Switzerland Denmark UK Spain
Small countries tend to have higher FDI levels in % of GDP
France Finland Austria
2005
Germany
1990
China
Large increases in past 15 years in Sweden, Spain and France
Greece USA Italy Korea India Japan 0
10
Source: UNCTAD
Stefan Bergheim · 23/11/06 · page 24
20
30
40
50
Japan and Italy are laggards
2.
Challenges and choices for European policymakers
Output of the innovation system can be boosted Patent activity is very strong in Switzerland, Finland, Japan, Sweden, Germany
Large differences in patenting activity Triadic patent families per million population Switzerland Finland Japan Sweden Germany
Large improvements in the 1990s in Finland, Sweden and Germany
USA Netherlands Denmark France Austria UK Canada
2002 1991
Laggards are Italy and Spain
Italy Korea Spain Greece China 0
50
Source: OECD Compendium of Patents Statistics
Stefan Bergheim · 23/11/06 · page 25
100
150
China is currently imitating, not innovating
2.
Challenges and choices for European policymakers
Vulnerability to rising energy prices can be reduced Energy intensity of GDP has fallen Energy use per PPP GDP (kg of oil equivalent per 2000 PPP $) Canada Finland Korea USA
Energy intensity down: On average, less energy is used today per unit of GDP than in 1991 (Nordic countries obviously at a disadvantage)
Sweden China
Largest improvements in 1990s in China, Canada, USA, Sweden and UK
France Germany Japan
2002 1991
Spain UK Greece
Korea, Spain and Japan went against the general trend
Austria Switzerland Denmark Italy 0.0
0.1
Source: W orld Development Indicators
Stefan Bergheim · 23/11/06 · page 26
0.2
0.3
0.4
Summary: Pressure and scope for action The rise of India and China (and other emerging markets) puts considerable adjustment pressure on EU economies Significant amount of heterogeneity across the EU-15 in terms of outcomes, levels, changes, strengths and weaknesses. Policy recommendations have to be countryspecific There is plenty of room for societies/policymakers to affect their country’s future. Fields of action include: Education, labour markets, openness, innovation etc. Stefan Bergheim · 23/11/06 · page 27
DBR Megatopic “Global growth centres” Introductory study “Global growth centres 2020” Follow-up studies on the drivers of growth “Human capital is the key to growth” and “Opening economies succeed”
Follow-up studies on the trend clusters “Live long and prosper” on cluster “Enlarging scope of life”
Going beyond Formel-G: “Measures of well-being” Country studies with scenario analysis already published: “Turkey 2020”, “India rising”, “Mexico: Tequila sunrise”, “Brazil: O país do futuro?”, “Japan 2020 – decline in trend growth”. Under preparation: Spain, Russia, Germany
Available at www.dbresearch.com Megatopic „Global growth centres“ Stefan Bergheim · 23/11/06 · page 28
Thank you!
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