Download Growth in turbulent times

‘Current Economic trends'
The future of the old Europe ?
New growth markets?
Financial crisis developed countries (DM)
• Essential problem: to much leverage
– to much leverage in the banking system
– to much leverage in the corporate sector
– to much leverage bij DM overheden
• The solution till now
– Double the leverage
– Shift the largest part to the government
– Not a very sustainable solution
Raw leverage increased
Who can take a blow?
Should leverage fall?
• Basel II capital rules are part of the problem
• Basel III rules may be part of the solution
– More capital required to take risk
– Raw leverage rules
• Financial activities tax is likely in some countries
• Liquidity rules are also in the pipeline
• Conclusion
– In the middle and longer run, banks will be able to
grant less credit with the same capital
The EU as debtor
The US as debtor
The US as debtor
06/09/10:
13,456
Household debt in the US
100%
90%
80%
70%
60%
50%
40%
30%
Total household debt
Household mortgage debt
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
20%
Temporary conclusion for OECD
countries
• In developed markets the revival will be slow and
difficult
– Leverage in banks and firms has to be reduced and
this will constrain growth
– Government debt has to be reduced this will constrain
growth
– In the US, household debt has to be reduced, but this
was the old motor of the economy
• This implies a slower more moderate growth path
in developed countries in the future
– Certainly in US in first years
Emerging markets
• Some suffered a lot less under the crisis
• Most countries solved the crisis by using the
reserves they built after previous crises
• So they do not suffer from excessive leverage
that needs to be reduced first
• This means emerging markets will see a much
faster and stronger revival
The fatal attraction of the BRIC
Durabric sed Bric
Global GDP growth
annualized quarters
Share of emerging market economies
in world GDP
Demographics play a large role
• China en India were always more important
demographically than Europe
• colonization
– Stopped development for centuries
– Has retarded education, health and growth
• Decolonization
– Countries regain their historical positions
– Welfare increases, child mortality falls, life
expectancy rises, fertility drops.
Ageing and de-greening
• Ageing and de-greening are DESIRABLE
– Sustainability demands a stable world population
– A peaceful stabilization of the world population
demands ageing and de-greening of the
population;
• This happens in ALL countries of the world
– Clearly in Europe
– Very clearly in Eastern Europe
– Dramatically in Russia and China
Mechanisms
• More education
–
–
–
–
Yields better health outcomes
Yields less children and less child mortality
yields more economic growth
Eventually yields less poverty
• There a lot of feed-back effects
– More economic growth stimulates education and
health outcomes
– Education of women is very good to reduce child
mortality and fertility drastically and to promote
better health
Sustainability
• Ageing will eventually lead to sustainable
growth
• A sustainable economy will become
increasingly more important
• This will also occur in BRIC countries
– They suffer most of all from environmental
degradation and damage
– Desert formation, deforestation, erosion, air
pollution, water pollution, …
Example: sustainable energy
What may happen with energy?
• Investments to reduce consumption
– Energy efficiency in transport en production
– Energy efficiency in home construction, industrial
construction and office construction
– Smart cities with smart grids and networks
• Green ways to produce energy
– Biofuels of second generation
– Hydro, wind, solar, biogas, tidal movements,
geothermal, recuperation
• New forms of living, production, consumption
and recycling
Solar
Tidal and wave energy
Hydro
Wind
Geothermal power
EU is wind power of the world
Wind energy is growing very quickly
Wind energy is covering
most new energy needs
Covers already +9% of total demand
Where is Belgium??
How to grow?
Lessons for a country
• Our economy grows because it becomes more
productive
• Our economy becomes more productive because
productive firms grow faster
• What is needed for that
– A policy that does not overly protect the weakest
firms, but instead stimulates the most productive
ones
– An open mentality with respect to innovation and
foreign economic activities
– Mobilization of human talent instead of stigmatization
How to grow?
Lessons for a company
• A firm will grow faster if it is more productive
• A firm is more productive if it invests its resources
in the most productive activities
• Lessons:
– Innovate and ruthlessly skip old activities if needed
– Keep an open view on foreign activities: Will Muslim
world and Africa become the BRIC of 21st century ?
– Growth in BRIC is also the growth of Belgian firms.