Challenges and Priorities for Europe. European Best Performers in Times of Crisis

CHALLENGES AND PRIORITIES FOR EUROPE
European Best Performers in Times of Crisis

This document has been prepared for The European House - Ambrosetti Forum “Intelligence on the World, Europe, and
Italy”, Villa d'Este - Cernobbio - September 6, 7 and 8, 2013.

Il presente documento è stato preparato da The European House - Ambrosetti per il Forum di “Lo Scenario di oggi e di
domani per le strategie competitive”, Villa d’Este - Cernobbio - 6, 7 e 8 settembre 2013.

Inserire titolo del documento
Challenges and Priorities for Europe

Index
Introduction
Methodological approach
Performance analysis of the 20 European OECD Countries:
Gross Domestic Product (GDP)
Employment and labour market
Government debt
Export and external openness
Attractiveness
Manufacturing
Innovation
Entrepreneurship

Closing remarks
1


Introduction
In the context of the current financial and economic crisis, The European
House – Ambrosetti decided to analyse the economic performance of
European countries in the last 10 years in order to comprehend the most
resilient countries during the crisis (2008-2012)
The study outlines common features, strategies and political choices
that have contributed to achieve positive performances in order to learn
from the best cases.
This document captures the trends of the last 10 years with a focus on
the financial and economic crisis, outlining possible reasons that explain
Countries performances.

2


Methodological approach
 Out of all the 28 EU Member States the analysis takes into consideration only
the 20 European OECD countries in accordance with data availability and
comparability.*
 The study considers as economic and financial indicators: GDP,
employment rate, labour cost, labour productivity, general government gross
debt, exports, external openness, foreign direct investments, value added of
manufacturing, R&D expenditure, venture capital investments, cost to start a
business and tax rates.

* The analysis excludes: Bulgaria, Croatia, Cyprus, Latvia, Lithuania, Luxembourg, Malta and Romania. Luxembourg was not
included in the study due to its specific economic structure and dimension.
3


The sample: 20 European OECD Countries
Country
Austria
Belgium
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Netherlands
Poland
Portugal
Slovakia
Slovenia
Spain
Sweden
United Kingdom

Code
AT
BE
CZ
DK
EE
FI
FR
DE
GR
HU
IE
IT
NL
PL
PT
SK
SI
ES
SE
UK
4


The GDP - Highlights
 With the exception of Greece, Italy and Portugal, all countries reported positive
performances in terms of GDP growth between 2002 and 2012; only 7 countries
(Austria, Belgium, France, Germany, Poland, Slovakia and Sweden) maintained the
same trend during the crisis period (2008-2012). [Figure 1]
 Moreover, the worst performers in the 2002-2012 decade were also the least
resilient over the crisis period. [Figure 1]
 During the decade, 7 countries had a GDP Compound Annual Growth Rate
(CAGR) in line or higher than the US; only 3 countries, Poland, Slovakia and
Sweden, outperformed the US during the crisis. [Figure 1]
 The countries with the best performances in two periods (with a GDP CAGR higher
than the sample’s average) were Austria, Poland, Slovakia and Sweden. [Figure 1]

5


The GDP – Figure 1
Resilience

GDP (2012): $13.518,000 mln.
CAGR 2002-2012: 1.64%
CAGR 2008-2012: 0.79%

The long term
Source: The European House – Ambrosetti re-elaboration on OECD data, 2013

6


GDP and entry into the EU and EZ- Highlights
 Entry into the EU or the Eurozone* (EZ) appears to produce positive effects on new
member states. While Austria’s performance has improved following entry into the
Eurozone, Poland and Slovakia have significantly improved their performance
in conjunction with entry into the European Union. [Figure 2]
800
700

GDP, Billion $

600
500
400
300

Austria
Poland
Slovakia
Sweden

200
100
0

Figure 2. Data from 2013 to 2018 are IMF projections

* Sweden and Poland did not adopt the Euro

7


GDP - Highlights
 Poland (9.88 out of 10) and Slovakia (8.34 out of 10) show the highest scores under
the GDP Index* which combines the country’s performance in the short- and longterm. Sweden and Austria followed closely. [Figure 3]
 Portugal, Italy and Greece report the lowest scores. Spain and Ireland – both
included in the PIIGS group along with Greece, Italy and Portugal – achieved better
scores due to stronger GDP growth during the 2002-2012 decade. [Figure 3]

*The GDP Index is a weighted average of the GDP CAGR during the 2002-2012 and 2008-2012 periods; assigned weights are
respectively 25% and 75%. The scores of the index range from 0 to 10
8


The GDP Index – Figure 3
COUNTRY

GDP INDEX

GDP - CAGR
2002-2012

GDP - CAGR
2008-2012

9.88
8.34
7.40
6.61
6.15
6.12
6.11
5.90
5.59
5.42
5.07
5.06
5.01
4.47
4.40
4.24
3.97
3.58
3.55
0.00

4.27%
4.50%
2.23%
3.45%
1.62%
2.91%
1.19%
1.35%
1.04%
1.36%
1.15%
1.57%
1.84%
1.30%
0.56%
1.14%
1.83%
-0.06%
-0.07%
-0.13%

2.96%
1.11%
1.43%
-0.19%
0.41%
-0.40%
0.62%
0.29%
0.13%
-0.25%
-0.52%
-0.78%
-1.00%
-1.28%
-0.91%
-1.44%
-2.15%
-1.44%
-1.48%
-5.40%

Poland
Slovakia
Sweden
Estonia
Austria
Czech Republic
Germany
Belgium
France
United Kingdom
Netherlands
Finland
Ireland
Spain
Denmark
Hungary
Slovenia
Portugal
Italy
Greece

*The GDP Index is a an overall indicator that combines the GDP CAGR of the 2002-2012 period with the 2008-2012 period.
9


Employment - Highlights
 Among EU best performers Austria and Sweden showed higher than average
employment rates. During the decade (2002-2012), Poland and Slovakia presented
a lower than average employment rate. However, Poland’s employment rate is rapidly
improving and the gap with the other countries is being reduced. [Figure 4]
 Between 2002 and 2012 only 8 countries have shown a reduction in the
employment rate. During the crisis only Germany, Poland, Hungary and Austria
have shown an increase of this index. [Figure 5]

10


Employment – Figure 4
EMPLOYMENT
RATE 2012

COUNTRY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

75.1
73.8
72.8
72.6
72.5
70.1
69.4
67.1
66.5
64.1
63.9
61.8
61.8
59.7
59.7
58.8
57.2
56.8
55.4
51.3

Netherlands
Sweden
Germany
Denmark
Austria
United Kingdom
Finland
Estonia
Czech Republic
Slovenia
France
Belgium
Portugal
Poland
Slovakia
Ireland
Hungary
Italy
Spain
Greece

EMPLOYMENT RATE
80%
75%
70%
65%
60%
55%
50%
2002

Austria

2003

2004

2005

Poland

2006

2007

Slovakia

2008

2009

Sweden

2010

2011

2012

Sample average (20 countries)

11

Source: The European House – Ambrosetti re-elaboration on Eurostat data, 2013


Employment – Figure 5
COUNTRY

8

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Poland
Germany
Estonia
Austria
Slovakia
Belgium
Italy
France
Hungary
Czech Republic
Netherlands
Finland
Sweden
Slovenia
United Kingdom
Spain
Denmark
Ireland
Greece
Portugal

VARIATION
2002-2012
8.0
7.4
5.4
4.4
3.2
2.1
1.4
1.0
1.0
1.0
0.6
0.3
-0.2
-0.2
-1.1
-3.2
-3.8
-6.3
-6.4
-7.4

* Employment rate refers to population aged 15 to 64
Source: The European House – Ambrosetti re-elaboration on Eurostat data, 2013

COUNTRY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

Germany
Poland
Hungary
Austria
Czech Republic
Sweden
Belgium
France
United Kingdom
Finland
Italy
Netherlands
Slovakia
Estonia
Slovenia
Denmark
Portugal
Ireland
Spain
Greece

VARIATION
2008-2012
2.7
0.5
0.5
0.4
-0.1
-0.5
-0.6
-0.9
-1.4
-1.7
-1.9
-2.1
-2.6
-2.7
-4.5
-5.3
-6.4
-8.8
-8.9
-10.6

16

12


Employment - Highlights
 Among the best performers in terms of GDP Index, only Poland and Austria
have shown a positive variation of the employment rate also during the crisis.
[Figures 5, 6, 7, 8]

 Considering new job creation per thousand inhabitants the best performing
countries in 2012 were Germany, Austria and Belgium. [Figure 9]
 New job creation and GDP growth have shown a positive relation. Greece,
Ireland, Portugal and Spain report negative performances under all accounts; Poland,
Austria and Sweden are the best performers along with Belgium and Germany. [Figure 9]

13


GDP and employment – Figure 6

Source: The European House – Ambrosetti re-elaboration on Eurostat and OECD data, 2013

14


GDP and employment – Figure 7


15


GDP Index and Employment Index – Figure 8

*The Employment Index is a weighted average of the variation in employment rate during the 2002-2012 and 2008-2012
periods; assigned weights are respectively 25% and 75%. The scores of the index range from 0 to 10


16


GDP and new job creation – Figure 9


17


The labour market - Highlights
 In all countries during the 2001-2011 period, the labour cost has increased.
Germany and Sweden registered the lowest increase. [Figure10]
 Sweden and Poland have registered an increase of labour productivity and a
slight increase in labour cost. [Figure10]
 Slovakia has registered the biggest increase in labour productivity: it should be
noted that the initial level of this indicator was particularly low. [Figure10]

18


The labour market – Figure 10
COUNTRY

LABOUR COST PER
HOUR IN EURO (2011)

Denmark
Sweden
Belgium
France
Netherlands
Germany
Finland
Austria
Ireland
Italy
Spain
United Kingdom
Greece
Slovenia
Portugal
Czech Republic
Slovakia
Estonia
Poland
Hungary

37.5
36.4
36.3
33.6
31.7
29.6
29.5
29.0
28.7
27.1
21.2
20.1
16.2
14.9
12.4
10.4
8.1
7.9
7.3
7.3

* Latest available data
** Labour productivity is measured as labour productivity per hour


19


Government debt - Highlights
 The countries with the highest government debt growth rate during the
2002-2012 decade are also the ones with a government debt-to-GDP ratio
lower than 60% (average ratio of the observed period). [Figure 11]
 Despite having one of the highest government debt growth rates, Sweden and
Slovakia have maintained a moderate government debt-to-GDP ratio. [Figure 11]
 During the decade, Italy and Greece have reported shrinking GDPs and the
highest government debt-to-GDP ratios (more than 100%). [Figure 11]
 Relating the GDP Index to the government debt-to-GDP ratio it emerges that countries
with higher GDP growth rates (Austria, Poland, Slovakia, Sweden) also have a
government debt-to-GDP ratio below 80%. [Figure 12]

20


Government debt – Figure 11

Source: The European House – Ambrosetti re-elaboration on IMF data, 2013

21


Government debt – Figure 12

Source: The European House – Ambrosetti re-elaboration on IMF data, 2013

22


Exports and external openness - Highlights
 The performance of EU countries is quite diversified in terms of exports. 12
countries out of 20 reported in 2012 an export-to-GDP ratio lower than 60%.
Ireland leads the ranking with a ratio set at 106.6%, followed by Hungary, Estonia
and Slovakia. [Figure 13]
 Poland has significantly improved its performance, reporting a positive
variation of 8% in the 2001-2012 period. A similar trend is observed in Austria.
Germany is the main trade partner of Austria and Poland (31% and 25% of total
exports in 2012 towards Germany).
 On the other hand, Sweden has presented an export-to-GDP ratio of 40% and an
increase in exports that is slightly higher than 3%. [Figure 13]
 Poland and Slovakia have also reported an impressive performance in terms
of external openness:* the results achieved are by far superior to the EU average.
Austria has been in line with the EU average. [Figure 14]
*External Openness is defined as (Export + Import )/GDP. It serves as a proxy for measuring the integration of the economy
into the global economy
23


Exports – Figure 13
EXPORTS OF GOOD AND SERVICES (% OF GDP, 2012)

Source: The European House – Ambrosetti re-elaboration on World Bank data, 2013

24


External openness – Figura 14
EXTERNAL OPENNESS (2002=100)
255
235

Austria

215

Poland

195

Slovakia
Sweden

175

Sample average
(20 countries)

155
135
115
95
2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012


25


Attractiveness - Highlights
 In 2011, Belgium attracted the lion’s share of Foreign Direct Investment
(FDI) flows (€103 billion); the United Kingdom, Germany and France followed at
some distance. [Figure 15]
 Belgium (17.7%), Slovakia (17.1%), Poland (17.0%) and Estonia (16.5%)
registered the highest growth rates. Austria and Sweden also report an annual
growth rate higher than 12%. [Figure 15]
 In terms of stock of FDIs on GDP Belgium and Ireland have registered the best
performances. The largest European economies - Germany, United Kingdom,
France, Italy and Spain - reported a value of this indicator lower than 55%. [Figure 16]

26


Attractiveness – Figure 15
20%

100,000

18%
16%

$ millions

80,000

14%
12%

60,000

10%
8%

40,000

6%
4%

20,000

2%
0%

0

FDI - FLOW, 2011 ($ millions)

*

*

FDI - STOCK, CAGR 2001-2011 (%)


Source: The European House – Ambrosetti re-elaboration on UNCTAD data, 2013

27


Attractiveness – Figure 16
FDI STOCK (% OF GDP), 2012

Source: The European House – Ambrosetti re-elaboration on UNCTAD data, 2013

28


Manufacturing and Europe
In late 2012 the European Commission launched a strategy aimed at bringing the
value added of manufacturing to 20% of GDP in the 27 member countries by
2020 (today this figure is equal to 15.6%).
This means that manufacturing value added should reach 2.550 billion euros,
starting from a level of 1.758 billion in 2011: this is approximately the value added
created by companies in the manufacturing sector of Germany and Italy.
To reach this objective, assuming that productivity levels remain constant over the next 8
years, the volume of those employed in manufacturing should rise from 32.3 to
46.8 million.
Valerio De Molli (2013), “The 20% rule in manufacturing”, Il Sole 24 Ore

29


Manufacturing - Highlights
 The manufacturing sector of the 4 best-performing economies represents a
high portion of GDP (from 16% in Sweden to 24% in Slovakia). [Figure 17]
 During the 2000-2010 period, the weight of manufacturing decreased in all
countries. Poland showed the smallest reduction while Ireland suffered the
greatest decrease. [Figure 17]
 Between 2001 and 2011, employment in the manufacturing sector decreased in all
countries except in Poland where the annual growth rate has been 0.6%. [Figure 18]

30


Manufacturing – Figure 17

*
*


31

Source: The European House – Ambrosetti, Observatory on Europe, Eurostat data 2013


Manufacturing – Figure 18
30%

1%

25%

0%

20%

-1%

15%

-2%

10%

-3%

5%

-4%

0%

-5%

*

Employment in manufacturing/Total employment (2011)

Employment in manufacturing, CAGR 2000-2010

*


Source: The European House – Ambrosetti, Observatory on Europe and Eurostat data, 2013

32


Innovation - Highlights
 In 2012, Finland, Sweden and Denmark registered an R&D expenditure on
GDP higher than 3%; the sample average instead is equal to 2%. [Figure 19]
 The ranking could be split in two: in the upper part are central and northern
countries; in the lower southern and eastern countries. [Figure 19]

33


Innovation – Figure 19
R&D EXPENDITURE (% OF GDP), 2012

Source: The European House – Ambrosetti on Eurostat data, 2013

34


Entrepreneurship - Highlights
 In 2012, Sweden was the best performer country for venture capital
investments on GDP (0.64%) and it also reported a low level of cost to start a
business (0.5%). [Figures 20, 21]
 In 2012, Poland reported a total tax rate lower than the average of analysed
countries (43.8% vs. 46.7%). [Figure 22]

35


Entrepreneurship – Figure 20
TOTAL VENTURE CAPITAL INVESTMENT (% OF GDP), 2012

Source: The European House – Ambrosetti re-elaboration on European Commission data, 2013

36


COST TO START A BUSINESS (% OF GROSS NATIONAL INCOME PER CAPITA), 2012


37


TOTAL TAX RATE (% OF COMMERCIAL PROFITS), 2012


38


EU Best Performers – Key common issues
 The good economic performances of the best performing countries (Austria,
Poland, Slovakia and Sweden) have been achieved in different ways.
 Austria and Sweden perform very well in terms of employment rate: from
2002 their employment rate is higher than average.
 The 4 best performing economies also present a government debt-to-GDP
ratio lower than 80%.
 Poland and Slovakia show a high level of external openness; Slovakia’s
exports account for almost 90% of its GDP.
 Germany is the main trade partner of Austria, Poland and Slovakia: these
countries have benefited from the stability of the German economy.
 The manufacturing sector of Austria, Poland and Slovakia accounts for a high
portion of GDP and employment (≈ 20%).
 Austria and Sweden have focused their efforts on labour markets and
innovation.
39


EU Best Performers - An overview
Germany

Austria

Poland

Slovakia

Sweden

14

15

19

15

11

17

14

17

Employment rate (2012)

3
4
12

11

5

7

2
5
9
6
6

General Government Debt (% GDP, 2012)

13

11

Old Age Dependency ratio (2012)

20

13

9
3

5
1

17

Inflation rate (%, 2012)

4

8

17

18

1

Manufacturing (% GDP, 2010)

5
8

7
11

9
5

4
6

12

Employment in manifacturing (2011)
Foreign Direct Investment (FDI stock/GDP, 2012)

18

14

13

12

10

14

External openess (as (Export+Import)/GDP, 2012)

11

9

12

8
4
2

Venture Capital (% GDP, 2011)

MANUFACTURING

Unemployment rate (2012)

5
3
1
3

Labour cost (2012)

PUBLIC FINANCE

11

Youth participation (2011)

LABOUR MARKET

4

Labour productivity (per person employed, EU-27=100, 2011)

10

20

4
4

8
7
2

14

Patents registered (2011)

20

19

19

19

1
3
5

INTERNATIONALIZATION Export (% GDP, 2011)

INNOVATION

R&D expenditure (% GDP, 2011)
ENTREPRENEURSHIP

2

12

5
13
13

Total tax rate (2012)

11

16

9

12

15

Cost to Start a Business (% of GNI per capita, 2012)

13

12

18

9

4

*The table offers a ranking of Germany and the top 4 economies from six different aspects

Source: The European House – Ambrosetti, Observatory on Europe, OECD and Eurostat data, 2013

40


Austria - Highlights
 The country benefits from excellent infrastructure and has improved
innovation capacity thanks to sustained R&D spending.
 Thanks to robust domestic demand, low unemployment and wealth of
its main partner, which is Germany, the Austrian economy is stable.
Favourable business environment allowed FDIs to recover quickly to precrisis levels.
 Manufacturing is focused on specialised high-quality products and accounts
for a significant portion of the GDP.
 Austria’s competitiveness would be further enhanced by greater flexibility
in the labour market and fine-tuning of its already excellent educational
system.

41


Poland - Highlights (1/2)
 Poland is definitely the most interesting case: indeed the country has been
reporting economic growth for over 20 years now.
 The reasons of the success may be attributed to:
 rigorous monetary policy aimed at containing inflation, which reached
a yearly rate of 649% in the ’80s; such discipline allowed it to avoid
credit bubbles;
 taxation – even though not particularly low – it has never gone out of
control; thus, a fiscal bubble has been prevented;
 manufacturing which represented one-fifth of GDP by the mid-1990s;
 external openness and reduction of external debt.

42


Poland - Highlights (2/2)
 The financial sector is well developed and confidence has been
increasing. Banks are assessed as more sound than in the past, although
additional consolidation would be necessary.
 Government efficiency and regulation remain the most critical aspects in
the opinion of the corporate sector.
 A significant upgrade of the transport infrastructure is required to boost
competitiveness further. Although some progress was made in this area
during the European Football Championship in 2012, further efforts are
nevertheless required to better connect the various parts of the country.
 Innovation is considered a key component for future growth in Poland
and the country is utilising €10 billion in Structural Funds from the European
Union to stimulate commercially-oriented research, particularly in the private
sector.

43


Slovakia - Highlights
 Several years ago, the relatively young Slovak economy exhibited the fastest
economic growth in Europe. However, this trend has gradually waned in
international comparisons and economic growth has slowed.
 The most significant competitive advantages of Slovakia are:


exports and external openness towards EU countries;



foreign investment stimulated by tax incentives;



manufacturing that produces a substantial proportion of GDP and
employs a significant portion of the labour force.

 Corruption, bureaucracy, restrictive labour regulations and insufficient
infrastructure were identified as the most problematic business factors and
the greatest long-standing hurdles in the Slovak business environment.

44


Sweden - Highlights
 The country has been placing significant emphasis on creating the conditions
for innovation-led growth.
 The Swedish government introduced tax reductions to tackle
employment reduction: in fact, employment rate went from 74.2% in
2007 to 73.8% in 2012.
 Efficiency and transparency of public institutions are particularly high
and they constitute attractive factors of the Swedish economy.
 Combined with a strong focus on education over the years and a forwardlooking attitude towards technological change, Sweden has developed an
advanced business culture and is one of the world’s leading
innovators.
 The country shows a stable macroeconomic environment, with a
balanced budget and manageable public debt levels. These characteristics
actively combine to make Sweden one of the most productive and
competitive economies in the world.

45

Challenges and Priorities for Europe. European Best Performers in Times of Crisis

Challenges and Priorities for Europe. European Best Performers in Times of Crisis

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