‘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 debtor06/09/10: 13,456

Household debt in the US

20%

30%

40%

50%

60%

70%

80%

90%

100%19

66

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Total household debt Household mortgage debt

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 growthannualized 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.