1. The winning and losing nations (or Sunrise, Sunset and Serendipity – time to start dropping BRICs) Sixth Gresham Lecture Douglas McWilliams Mercers School Memorial Professor of Commerce at Gresham College Centre for economics and business research ltd Unit 1, 4 Bath Street, London EC1V 9DX t: 020 7324 2850 f: 020 7324 2855 e: advice@cebr.com w: www.cebr.com

2. © Centre for economics and business research ltd, 2013 2 To examine which countries are likely to perform relatively better in the changed world and which ones are likely to perform relatively worse Objective

3. © Centre for economics and business research ltd, 2013 3 The context – previous lectures in the series Sunrise and sunset cycles Time to start dropping BRICs Sunrise economies Sunset economies Serendipity economies Outlook to 2050 The 2013 Budget Overview

4. © Centre for economics and business research ltd, 2013 4 The sunrise cycle Cheap educated labour Export growth leading to rising GDP High profits High investment Strong productivity growth

5. © Centre for economics and business research ltd, 2013 5 The sunset cycle Costs cannot compete Weak exports leading to weak GDP Profits squeeze and loss of tax Falling investment Stagnant productivity

6. © Centre for economics and business research ltd, 2013 6 The misery cycle Competitive wage below welfare level Collapsing employment and GDP Escalating deficits Financial collapse Higher taxes and reduced public services

7. © Centre for economics and business research ltd, 2013 7 Concept has been very helpful in boosting understanding of globalisation process But increasingly the BRICs economies are becoming too diverse for one category And it mixes those with internal dynamic growth with those who just got lucky with high energy or mineral prices At the moment with energy and minerals prices high, both groups have had rapid growth in spending power But in the future, these prices – though on average rising – will not rise further by as much and energy prices could even drop beyond 2020 Time to start dropping BRICs

8. © Centre for economics and business research ltd, 2013 8 The world economic league table 2012-2022

9. © Centre for economics and business research ltd, 2013 9 China India Indonesia Korea Mexico Turkey Taiwan Thailand Nigeria Sri Lanka Sunrise economies

10. © Centre for economics and business research ltd, 2013 10 US Japan Europe Sunset economies

11. © Centre for economics and business research ltd, 2013 11 Russia Brazil Canada Australia Saudi Arabia Serendipity economies

12. © Centre for economics and business research ltd, 2013 12 Ethnic composition of US population forecast for 2050 20052050 Foreign born1219 White6747 Hispanic1429 Black13 Asian59 Source: Pew Research Centre

13. © Centre for economics and business research ltd, 2013 13 World outlook for GDP for large economies Billions of US dollars, current prices at market exchange rates

14. © Centre for economics and business research ltd, 2013 14 Some cuts in current spending (may be more than seems because of need to absorb higher NI charges) Extra spending on infrastructure Housing market package Rise in personal allowance for income tax Cut in corporation tax NIC allowance for expanding small businesses Potential major monetary policy reforms Revised inflation remit for MPC The main Budget measures

15. © Centre for economics and business research ltd, 2013 15 Unrealistic hopes of a quick Eurozone recovery persist Eurozone real gross domestic product, annual percentage change

16. © Centre for economics and business research ltd, 2013 16 OBR still looks too optimistic on growth in the medium-term ECONOMIC OUTLOOK UK real gross domestic product, annual percentage change

17. © Centre for economics and business research ltd, 2013 17 Borrowing in 2017/18 to be £30 billion higher than forecast by the OBR… PUBLIC FINANCES Public sector net borrowing, £ billion, financial year

18. © Centre for economics and business research ltd, 2013 18 … with the debt:GDP ratio rising above 90% PUBLIC FINANCES Net debt as a percentage of GDP, fiscal years

19. © Centre for economics and business research ltd, 2013 19 £10,000 personal allowance to boost real disposable income growth ECONOMIC OUTLOOK Income tax (£) paid by someone with a gross yearly income of £25,000

20. © Centre for economics and business research ltd, 2013 20 Corporation tax rate reduced even further UK corporation tax - main rate PUBLIC FINANCES

21. © Centre for economics and business research ltd, 2013 21 Small businesses to benefit from employment allowance 21 Number of enterprises by employment size, 2011, thousands PUBLIC FINANCES

22. © Centre for economics and business research ltd, 2013 22 Help to buy scheme launched to support new and existing home purchases Approvals of loans for home purchases, thousands PUBLIC FINANCES

23. © Centre for economics and business research ltd, 2013 23 New MPC remit could pave the way for medium-term interest rate commitments Bank of England Bank Rate, percentage MONETARY POLICY

24. © Centre for economics and business research ltd, 2013 24 Long term borrowing rates to rise but remain extremely low Yield on 10 year government bonds, percentage MONETARY POLICY Forecast

25. The winning and losing nations (or Sunrise, Sunset and Serendipity – time to start dropping BRICs) Douglas McWilliams, Mercers’ School Memorial Professor of Commerce at Gresham College and Chief Executive of Cebr