The conditions for growth, who has them?

Last September, we identified four pockets of opportunity in a flat global economy that we thought were poised to take advantage of a nascent economic recovery.

Figure 5 Our previous pockets of opportunity measured up well against economies in their region

Figure 5: Our previous pockets of opportunity measured up well against economies in their region

Figure 6 Our new pockets of opportunity are leaders in key conditions for growth

Figure 6: Our new pockets of opportunity are leaders in key conditions for growth

Figure 7 Our pockets of opportunity will grow at more than twice the rate of the Eurozone over the next 5 years

Figure 7: Our pockets of opportunity will grow at more than twice the rate of the Eurozone over the next 5 years

Our chosen economies, Poland, Mexico, Australia and Indonesia had all bounced back swiftly from the 2008 crisis while maintaining good fiscal and financial sustainability. As Figure 5 shows, these economies clearly outperformed their regional peers.

In this issue we revisit the theme of opportunity based on the framework set out in our recent Economic Scorecard*.

Using the 5 criteria of, “growth sustainability” which measures financial and political stability,” “resources for growth” which captures human skills and physical capital, “business environment” which captures the ease of doing business, “access to markets” and “cost competitiveness", we ranked each of the 25 economies we cover (representing around 80% of global GDP) to assess the winners and losers.

Figure 6 shows that our chosen economies of Poland, Australia, South Korea and Canada are all the most highly ranked in at least one of these criteria, while the BRIC economies fare less well.

Poland had the greatest access to international markets in our sample. It is strongly focused on exports, which accounted for 46% of GDP in 2012, the majority of which went to Germany and other Eurozone countries. Poor economic conditions in the Eurozone have constrained its short term growth, but Figure 7 shows we project its economy will grow almost 20% in real terms over the next five years.

Australia ranks as the economy with the best business environment in our sample. It takes on average only 2 days and 2 procedures to start a business in Australia, compared to a global average period of 29 days and 7 procedures.

While it avoided the financial crisis (growing by 1.4% in 2009) due to its strong mining and natural resources industries, continued slow growth has led to slumping commodity prices and growing pressure on this key area of the economy.

For perspective, our 2013 GDP projection of 2.5% for Australia (comfortably quicker than other advanced economies) is the slowest in more than 20 years, excluding the recent financial crisis.

South Korea ranks as the economy with the best resources for growth in our sample. As the global economy becomes increasingly driven by technology, its high rate of investment in R&D of around 3.7% of GDP in 2011 will provide its skilled labour force with the intellectual and physical capital needed to boost productivity and growth.

Technology will be key to addressing one characteristic that counts against South Korea, its relatively poor demographic outlook. In 2030 approximately 24% of its population will be 65 or older.

Canada is the economy with the greatest growth sustainability in our sample.

While not an obvious choice for a pocket of opportunity. Canada has weathered the financial crisis with a stable banking system and has a well functioning political system with strong institutions.

Furthermore, it is well endowed with a range of natural resources, it ranks in the top 5 energy producers in the world with one of the lowest costs of electricity. Renewable energy play s a large role in the domestic energy market, accounting for more than 60% of electricity production in 2011. Strength in this area will be a significant advantage as the direct financial costs and indirect climate costs of energy dominates the global growth outlook.

*www.economicscorecard.eu for more information