Decreasingly 'open' UK's growth prospects hit by Brexit instability

02 February 2018 Consultancy.uk

In the latest edition of the Growth Promise Indicator the Netherlands takes the number one spot, followed closely by Switzerland. Luxembourg, Hong Kong and Norway round off the top five. The UK places in a distant 13th, however, having fallen behind in how the country’s macroeconomic stability and openness are perceived, as the Brexit saga continues.

To better understand the prospect for growth of various countries across the globe, KPMG leveraged its vast store of country specific indicators, and analysis from its analysts, to develop what it calls its ‘Growth Promise Indicator’ (GPI). The index, which is in its second year, was recently turned into a reported, titled ‘Growth Promise Indicators 2018 report’, which considers the relative standing of top performers, as well as how various country groups fare in the key indicators.

The firm’s GPI is derived by drawing on a vast amount of independent global data sources, to create 15 categories which are then weighted into 5 key indicators, Macroeconomic stability, Openness, Human development, Quality of infrastructure and Quality of institutions, which are finally weighted into the country specific ‘Headline Index’ score. The data is used retrospectively to create a more robust analysis of the country’s current position.

Top 20

The Netherlands takes the number one spot, with a weighted score of 8.62 – the country offers a strong and stable macroeconomic environment, as well as high scores in infrastructure and institutional development. Switzerland misses out on first place to the Netherlands by a whisker, having performed particularly well in infrastructure and institution scores. Luxembourg rounds out the top three with a score of 8.29.

Top 20

While Europe dominates the top ten, with eight entries, Hong Kong placed fourth with a score of 8.25, backed by strong macroeconomic score (9.14 out of ten) and a perfect score on openness. Nordic countries, Norway (#5), Finland (#6), Denmark (#8) and Sweden (#9), perform particularly well at the top end of the top ten, with city state Singapore on (#7).

The UK finds itself in number 13, with a score of 7.57, just behind Canada and New Zealand. Britain has a strong performance in human development and institutional indices, but is negatively impacted in terms of macroeconomic stability and openness, in light of Brexit. While this could be viewed as a major concern for UK businesses in coming months, with various polls already suggesting CEOs are less than positive about future prospects, it is worth noting the country’s growth prospects are still rated higher than those of the EU’s largest economy, Germany. This may be in relation to the inconclusive German elections, which have seen Chancellor Angela Merkel unable to form a government for several months. However, as this situation, while volatile, is likely to resolve itself relatively soon, compared to the sustained uncertainty of Brexit at least, it is unlikely to damage Germany’s long-term growth potential.

Region scores

Aside from providing a global ranking of individual countries, the firm analyses long-term trends for various regions – highlighting, for instance, the growth of technological readiness back to the early 2000s.

Technology adoption

While North America remained well out ahead of Europe and developed Asia in the late 2000s, since 2012 the three regions have increasingly converged to a score of around 7, with Europe surpassing developed Asia in 2011. Eastern Europe saw a massive boost in i2008, which saw the region enter a period of accelerated development, while developing Asia has accelerated its rank since 2008 on the back of a slow start. The Middle East is the only major region to continue to lag behind.

The research also sought to compare scores for wider trends. The research noting that stronger institution scores tend to be correlated with higher technological scores, although the relation does not hold for all regions – particularly in the Asia Pacific region – investing heavily in improving their respective institutions before focusing on technology. Which, given the potentially disruptive effect of technology on society, strong institutions are likely required to limit the potentially adverse use of technologies.

Institutional score

Commenting on the rapid changes, the authors write, “Technological change can cause disruption as well as growth. The robustness and stability of a country’s institutions is a key factor in coping with this disruption. Major shifts in automation, for instance, can have telling impacts on employment. Business rights protection is another focus area for markets looking to welcome major technology brands for the first time.”

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