‘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

06/09/10: 13,456

Household debt in the US

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 growth annualized 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 21 st century ? – Growth in BRIC is also the growth of Belgian firms.