Global power shift to result in backward trajectories for advanced economies by 2050

BY Fraser Tennant

A global economic power shift could put advanced economies such as North America, Western Europe and Japan on a backward trajectory by 2050, according to the latest in PwC’s series of ‘The World in 2050’ reports.

Published this week, the report – ‘The World in 2050: Will the shift in global economic power continue?’ – presents long-term projections of potential GDP growth up to the year 2050 for 32 of the world’s largest economies (84 percent of total global GDP).

Key findings in the PwC report include: (i) UK GDP is likely to fall behind Mexico and Indonesia by 2030 – this could push the UK and France out of the top 10 by 2050; (ii) long-term UK growth (averaging 2.4 percent to 2050) could be better than other large EU economies, including Germany, France and Italy; (iii) China will clearly be the largest economy by 2030, but its growth rate is likely to revert to the global average in the long run; (iv) India could challenge the US for second place by 2050; and (v) Nigeria and Vietnam are set to be the fastest growing large economies over the period to 2050.

“Emerging economies like Indonesia, Brazil and Mexico have the potential to be larger than the UK and France by 2030," claims John Hawksworth, PwC’s chief economist. “Indonesia could rise as high as fourth place in the world rankings by 2050 if it can sustain growth-friendly policies.”

The PwC report also suggests that the world economy is set to grow at an average of around 3 percent per year from 2015 to 2050, doubling in size by 2037 and then nearly tripling by 2050. However, the report concedes that there is likely to be a slowdown in global growth after 2020.

A forthright Mr Hawksworth said “Europe needs to up its game if it’s not to be left behind by this historic shift of global economic power, which is moving us back to the kind of Asian-led world economy last seen before the Industrial Revolution.

“The US may hold up better, provided it can remain at the global technological frontier, and the UK could also perform well by G7 standards if it remains open to trade, investment, people and ideas.”

Report: The World in 2050 - Will the shift in global economic power continue?

Is Greece’s new PM Alexis Tsipras the man to avert further Greek tragedies?

BY Fraser Tennant

Elected earlier this week on an anti-austerity ticket, the new Greek prime minister, Alexis Tsipras, is a man who does not have problems to seek.

Prior to his appointment, Greece’s new man in charge had promised to raise the country’s minimum wage, create 300,000 new jobs, end the crippling austerity measures, and provide free food and electricity for those unable to afford it.

To tackle these, Tsipras has announced a series of measures which clearly state his intention to continue the anti-austerity pledges that saw his Syriza party triumph in this week's election.

Mr Tsipras’s demeanour during his first few days in office has been a mixture of defiance and reassurance. During his first cabinet meeting the new PM wasted little time in putting his pre-election, anti-austerity pledges into practice. He said “We are coming in to radically change the way that policies and administration are conducted in this country.”

Among a series of proposals, the new prime minister has announced plans to: (i) halt the privatisation agenda agreed under the country's bailout deal (this includes the sale of a stake in the country's largest electricity company, Public Power Corporation of Greece (PPC)); (ii) reinstate public sector employees judged to have been laid off without proper justification; and (iii) increase pension payments for retired people on low incomes.

Mr Tsipras and his team of anti-austerity ministers have already promised to negotiate with international creditors over Greece’s €240bn (£179bn/$270bn) bailout.

Naturally, the suggestion that Greece is looking to renegotiate its debt austerity package has not gone down well in the rest of Europe, especially Germany, which responded quickly to say that it had no intention of renegotiating the aid package that was agreed to help Greece pay off its massive debts. 

 “Since the beginning of the crisis, the goal has been to stabilise the whole of the Eurozone, including Greece, and that remains the goal of our work," said Steffen Siebert, a spokesman for the German government.

With Greece’s financial markets reacting with alarm to its new government’s anti-bailout agenda (the Athens Stock Exchange (ASE) lost more than 9 percent this week); the pressure is growing and the clock ticking for Mr Tsipras ahead of his first European summit in two weeks’ time.

News: Greek leftist Tsipras sworn in as PM to fight bailout terms

Optimism varies among global CEOs, but slow economic growth expected in 2015

BY Fraser Tennant

CEOs are less optimistic about the prospects for global growth than they were one year ago, according to PwC’s new Annual Global CEO Survey.

The Survey, the 18th of its kind, conducted 1322 interviews with CEOs in 77 countries during the last quarter of 2014. Its key findings include: (i) 37 percent of CEOs think that global economic growth will improve in 2015, down from 44 percent the previous year; (ii) 17 percent of CEOs believe global economic growth will decline, more than twice as many as a year ago; and (iii) 44 percent of CEOs expect economic conditions to remain constant.

Broken down regionally, CEOs in Asia Pacific were found to the most optimistic about the global economy, with 45 percent expecting improvement. In the Middle East this figure was 44 percent and in North America, 37 percent. However, only 16 percent of CEOs in Central and Eastern Europe expect economic improvement.

Despite the overall declining outlook for the global economy, CEOs are confident about the prospects for their own company - 39 percent believe their company’s revenues will grow in the next 12 months.

“The world is facing significant challenges: economically, politically and socially," said Dennis M. Nally, chairman of PricewaterhouseCoopers International. “CEOs overall remain cautious in their near-term outlook for the worldwide economy, as well as for growth prospects for their own companies.

“While some mature markets like the US appear to be rebounding, others like the Eurozone continue to struggle. CEO confidence is down notably in oil-producing nations around the world as a result of plummeting crude oil prices. Russia CEOs, for example, were the most confident in last year's survey, but are the least confident this year.

“Finding the right strategic balance to sustain growth in this changing marketplace remains a challenge.”

Other concerns highlighted by CEOs include: the availability of key skills; over-regulation; fiscal deficits and debt burdens; geopolitical uncertainty; increasing taxes; cyber threats and the lack of data security; social instability; shifting consumer patterns; and the speed of technological change.

Report: A marketplace without boundaries? Responding to disruption

Resurgent US re-emerges as dominant global economic force

BY Fraser Tennant

The US has reclaimed its position as the dominant force in the global economy, according to leading economists.

Following 15 years of stagnant growth, influential figures at JPMorgan Chase & Co, Deutsche Bank AG and BNP Paribas SA, suggest that 2015 will see the US economy expand by 3.2 percent – its strongest rate of growth in a decade.

The resurgence of the US as a leading economic force is largely being credited to an improving jobs market – the unemployment rate has fallen to 5.6 percent (the lowest since 2008) and 2014 saw an additional three million people in work – which in turn has led to an increase in personal consumption expenditure ($11.5 trillion in 2013).

“The US is again the engine of global growth,” said Allen Sinai, chief executive of Decision Economics in New York. “The economy is looking stellar and is in its best shape since the 1990s.”

While sectors including construction, healthcare, manufacturing and business services are all benefiting from US economic growth, wages, however, have stagnated with average hourly earnings falling 0.2 percent last month.

“We are still waiting to see the kind of strengthening of wage numbers we would expect to be consistent with what we are seeing elsewhere in terms of growth and the absolute jobs numbers,” said Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. “It’s just a matter of time before wage growth picks up.”

The surge in US growth has also been attributed to stringent policy-making – in particular the budget decisions which have navigated the US through the economic storm with far greater success than that of their European counterparts.

“Progress has been far greater in the US,” said Glenn Hubbard, dean of the Columbia Business School in New York and a former chief White House economist. “Looking across much of the rest of the world, the US continues to dominate.”

At the same time as US growth goes from strength to strength, the economies of Brazil, Russia, India and China – the BRIC nations – are flagging with debt, recession, US and European sanctions and plummeting oil prices all playing a part.

News: US Retakes Helm of Global Economy

2015 to bring uncertainty and optimism for largest UK companies suggests Deloitte survey

BY Fraser Tennant

Uncertainty over domestic policy as well as foreign economic and geopolitical risks are the biggest challenges facing the UK’s largest companies in 2015, according to a survey of chief financial officers (CFOs) carried out by Deloitte.

The survey, which features the views of 119 CFOs of FTSE 350 and other large private UK companies, also shows that, despite uncertainties, CFOs are confident as to the prospects for UK growth and business investment in 2015, with their businesses expected to see earnings rise by 2.9 percent. 

Carried out between 27 November and 15 December, Deloitte’s Q4 2014 CFO Survey highlights that: (i) 56 percent of CFOs say that now is a good time to take greater risk onto their balance sheets, down from a record reading of 71 percent in Q3 2014 but still well above the long-term average; (ii) 60 percent of CFOs enter 2015 with above normal, high or very high levels of uncertainty facing their businesses, up from a low of 49 percent in Q2 2014 but at the same level seen 12 months ago; and (iii) 88 percent of CFOs rate the UK as a “good” or “excellent” place to do business, with a quarter placing it in the top-tier of industrialised economies.

“The central challenges facing the UK’s largest companies as they enter 2015 are policy uncertainty at home and economic and geopolitical risks overseas," said Ian Stewart, chief economist at Deloitte. “Rising levels of uncertainty have caused a weakening of corporate risk appetite which, nonetheless, remains well above the long-term average.

“Concerns about policy change after May’s General Election have risen significantly and this is seen as the biggest risk facing UK business in 2015.  Deflation and weakness in the euro area is a growing concern and is now the second greatest business risk, followed by a UK referendum on EU membership and by emerging market weakness.

“This marks a big shift in thinking. Going into each year, from 2008 to 2013, CFOs’ main concern was the state of the UK economy. Now the risks are seen as lying elsewhere.” 

The Deloitte Q4 2014 CFO Survey is the 30th quarterly analysis of CFOs of major UK companies. It is the only survey concerning valuations, risk and financing which seeks the views of major financial players in the UK.

Report: The Deloitte CFO Survey: 2014 Q4