Global growth centres 2020

Transcription

1 Washington, D.C., June 23, 2005 American Institute for Contemporary German Studies Global growth centres 2020 A guide for long-term analysis and forecasting Stefan Bergheim stefan.bergheim@db.com

2 Global growth centres 2020: goals Target: growth rate of gross domestic product (GDP) in the period 2006 to 2020 (per capita and overall) 34 countries: 21 rich countries and 13 emerging markets Value added: combination of quantitative and qualitative elements Quantitative element: drivers influence GDP directly. Uses state-ofthe-art empirical methods to model the links between drivers and GDP in the econometric equation. Qualitative element: broad-based interdisciplinary trend analysis to improve forecasts of drivers. Structural breaks are captured. Slide 2

3 Formel-G: Foresight Model for Evaluating Long-term Growth GDP Econometric equation Driver 1 Driver 2 Driver 3 Driver 4 Trend cluster 1 Trend cluster 2 Trend cluster Trend cluster 6 Fundamental growth drivers Fundamental social, economic and technological trends Slide 3

4 First step: identify drivers of economic growth Theoretical relationship with GDP growth Empirical relationship is both statistically and economically significant (our panel estimates) Time series must be available (Central and Eastern Europe therefore not included) Includes information not covered by any of the other drivers (collinearity) Slide 4

5 Driver: GDP per capita? Strong growth possible in rich and in poor countries IN ID MY CN TR BR MX TH CL AR emerging markets KR PT GR Real GDP per capita in 2002, PPP USD Expected annual GDP grow th , % ES Source: Deutsche Bank Research Formel-G rich countries IE FR CA AT NO NZ UK IT DK DE CH US Conventional wisdom: poor countries grow more strongly than rich ones Growth centres among the rich and the poor countries => There is no automatism! Growth requires hard work Slide 5

6 Driver 1: Population growth Population 2002 (selected countries) China (1) India (2) USA (3) Germany (9) Turkey (10) Thailand (11) France (12) Spain (17) Canada (19) Malaysia (20) Ireland (34) in million Source: World Bank Quantity of labour input More people allow for higher levels of GDP overall Not relevant for the individual (GDP per capita) Our measures: total population and age group Rank among 34 Formel-G economies in ( ) Slide 6

7 Driver 2: Investment ratio Investment ratio in 2002 China (1) Malaysia (3) India (9) Turkey (10) Thailand (14) Spain (18) France (25) Canada (27) USA (32) Germany (33) in % of GDP Ireland (34) Sources: OECD, World Bank Accumulation of real capital More capital input with a given labour boost productivity Declining marginal returns Long-term ceiling at approx. 30% Our measure: real investment in % of GDP Slide 7

8 Driver 3: Human capital Average years of education 1998 Germany (1) Canada (2) USA (4) France (17) Ireland (18) Malaysia (22) Spain (23) Thailand (28) Turkey (31) Quality of labour input: Ability to generate and apply new knowledge Growth of human capital relevant for to per-capita GDP growth (not: level of human capital) Correlates positively with economic freedom China (32) India (33) Source: OECD per person aged 25 to Our measure: average years of education of the population aged 25 to 64 Slide 8

9 Driver 4: Trade openness Openness Germany (1) Malaysia (4) France (6) Ireland (7) Thailand (11) Canada (12) Spain (16) USA (17) China (18) Turkey (20) India (29) Deviation from the average country in the 1980s Source: Deutsche Bank Research Exchanging goods and ideas with other countries promotes learning Increasing competitive pressure boosts efficiency of domestic companies Change in openness leads to change in GDP Our measure: foreign trade in % of GDP corrected for population and price differences Slide 9

10 Formel-G the first step has been taken GDP Econometric equation Population growth Investment ratio Human capital Trade openness Trend cluster 1 Trend cluster 2 Trend cluster Trend cluster 6 Fundamental social, economic and technological trends Slide 10

11 Second step: trend analysis for more reliable forecasts First stage: extrapolation. Past development determines course of each time series (exception: population growth) 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) Slide 11

12 Selection of 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 are 6 consistent clusters Slide 12

13 DBR trend map all trends at a glance Urbanisation rises Labour migration increases Career paths and work environments become more flexible Women gain more importance in employment Restriction of growth Opening of work and society Global networking in business and politics Knowledge-intensive services gain in importance Services are increasingly provided across borders Markets are deregulated on national basis Process virtualisation in networks Links between humans and machines strengthen Electronic networks become more pervasive and perform better Virtualisation of organisational and market processes Transnational companies gain increasing importance Global institutions gain more influence Potential for social frictions rises Conquest of smallest structures Threats from international terrorism increase Natural resources become scarcer DB Research trend map The trends that will shape the global economy in the next two decades Enlarging scope of life Health sector grows Populations are ageing Biotechnology becomes central growth area Micro and nanotech. become important fields of innovation Regional economic cooperation and integration intensify More trade in intellectual property rights and licences The individual and society Organisational forms and markets Institutions and political environment Innovation and technology Slide 13 Natural resources Trend cluster

14 Trend analysis: changes in the speed of trend clusters Trends describe long-term changes in the environment society, economy, technology; time horizon > 20 years Country experts assess speed of 6 trend clusters in 34 economies A relevant impact on our growth analysis comes from the changes in the speed of trend clusters unchanged speed ( ) included in the baseline forecast Strength of trend Trend accelerates? Change in speed! remains unchanged? Trend decelerates? Change in speed! Forecast period Slide 14

15 Example: acceleration of a trend cluster in India Enlarging scope of life accelerates Past Low healthcare expenditures bottom end of the reviewed countries Copycat pharmaceutical industry reverse engineering for local market Low life expectancy 64 years (women, 2002); Japan: 84 years Future Higher public expenditures for example via the introduction of VAT R&D-intensive pharmaceutical industry higher margins; R&D outsourcing Rising life expectancy Increasing expenditures, health is highly valued by the population GDP Enlarging scope of life (India) Slide 15

16 Impact of trends on drivers GDP Econometric equation Driver Population growth Driver Investment ratio Driver Human capital Driver Trade openness Trend cluster 1 Enlarging scope of life (India) Trend cluster 2 Trend cluster Trend cluster Slide 16

17 Third step: identification of growth centres 2020 The six trend clusters systematically impact the four drivers in all 34 countries Improved forecasts of drivers are fed into the econometric equation Result: Forecasts of per-capita and overall GDP Additional advantage of Formel-G: Transparent analytical framework for growth forecasts Slide 17

18 The growth centres 2020 according to Formel-G Ranking of overall GDP growth India (1) Malaysia (2) China (3) Thailand (4) Turkey (5) Ireland (6) USA (11) India, Malaysia and China will post the highest GDP growth rates (above 5%) over Ireland, the US and Spain are the rich countries expected to grow most Spain (13) Canada (15) GDP per capita Population growth Germany, at 1.5%, takes rank 27 of 34 countries France (16) Germany (27) % yoy, p.a Source: Deutsche Bank Research Formel-G Slide 18

19 The largest economies 2020 according to Formel-G GDP in 2020 according to Formel-G USA (1) China (2) India (3) Germany (5) France (6) Canada (11) Spain (13) Thailand (15) Turkey (16) Malaysia (19) In 2020, the US and China will still be the two largest economies in the world (in PPP) India leaves Japan behind and moves up to 3 rd place Germany still in 5 th place Ireland (28) in USD trn Source: Deutsche Bank Research Formel-G Slide 19

20 High add-on from trends in India, Turkey and Germany Explaining GDP growth India (1) Malaysia (2) India opens up internally and externally China (3) Thailand (4) China s opening continues at a rapid pace Turkey (5) Ireland (6) USA (11) Spain (13) Baseline forecast Germany: Problems are being tackled, solutions initiated Canada (15) Add-on from trends France (16) Germany (27) % yoy, p.a Source: Deutsche Bank Research Slide 20

21 Large differences in population growth Population growth Malaysia (1) India (2) Turkey (5) Ireland (8) USA (9) Thailand (10) China (12) Canada (16) France (19) Germany (25) Spain (26) Sources: UN, Deutsche Bank Research Baseline forecast (UN) Add-on from trends % yoy, p.a. Owing to improved healthcare and high birth rates, India s population will grow by 1.6% p.a. For the US high immigration is assumed One-child-policy will slow population growth in China Generally, a great deal of uncertainty is attached to the forecasts due to migration Slide 21

22 Investment ratio climbs above 30% in India Investment ratio: Change Turkey (2) India (4) USA (5) India will improve investment conditions by opening up internally and externally Canada (8) Spain (10) Thailand (11) Ireland (15) Malaysia (18) France (22) Germany (23) Baseline forecast Add-on from trends Sorted by total change In Germany, investment will rise only slightly, from a low level Given the extremely high level at present, China is likely to see its investment ratio decline China (31) %-points Source: Deutsche Bank Research Slide 22

23 Human capital rises most rapidly in Asia Years of education: Change India (1) China (2) Thailand (4) Spain (6) Turkey (9) Human capital will rise strongly in India and China Hardly any growth in Germany according to baseline forecast Malaysia (12) Ireland (13) France (16) Germany (28) Baseline forecast Add-on from trends As in the past, increase in the average level of education should be limited in the US USA (29) Canada (31) % Source: Deutsche Bank Research Slide 23

24 Political changes drive openness Openness: Total change Turkey (3) China (4) China: politicians continue to actively push opening India (5) Spain (7) Thailand (8) India: increasingly opens up Ireland (11) USA (12) Baseline forecast Germany: orientation towards Asia Malaysia (13) France (15) Add-on from trends Canada (16) Germany (20) in points Source: Deutsche Bank Research Slide 24

25 Gaps between growth forecasts Formel-G forecast vs WEFGrowth Competitiveness Index 6.5 WEF Growth FI Competitiveness US Index SE CH JP IT DE BR AR Formel-G GDP forecast p.a Sources: Deutsche Bank Research, WEF MX KR IE ID ES TR TH CN MY IN Index of the World Economic Forum (WEF) only explains differences in GDP levels Formel-G models GDP growth rates WEF Index understates the growth potential of India, China, Turkey and Malaysia WEF Index overstates the growth potential of Switzerland and Finland Slide 25

26 Global growth centres: the next steps Application of framework Formel-G to determine country risks and chances Follow-up studies on the key drivers openness, human capital in June/July Follow-up studies on trend clusters including more on the methods used Country studies, particularly by our Emerging Markets Team, including scenario analyses already published Turkey 2020: on course for convergence, India rising. Others to follow Slide 26