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Session 5 Economic Environment PDF
Session 5 Economic Environment PDF
1. Resource allocation
2. Resource utilization
3. Wealth creation
4. Wealth distribution
2
Learning Objectives
3
Economy is important because
4
China Index of Consumer Sentiment
2 months progressive to November 2015
135
Happy 98 % of last 20 years
130
125
120
115
110
105
100
China has had no recession since 1976
95 (death of Mao Zedong)
90
85
80
75
70
65
60
2011
2013
2015
2017
2019
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Source: Trading Economics/IBISWorld 11/01/16
Japan Index of Consumer Sentiment
2 months progressive to November 2015
124
Happy 71% of last 30 years
120 61% of last 20 years
116
112
108
104
100
96 Recession Level
92
88
84
80
76
72
1984
1998
2000
2014
2016
1972
1974
1976
1978
1980
1982
1986
1988
1990
1992
1994
1996
2002
2004
2006
2008
2010
2012
2018
2020
Source: OECD / IBISWorld 11/01/16
Australian Index of Consumer Sentiment
2 months progressive to January 2016
135
Happy 66% of last 40 years
130 74% of last 20 years
125
120
115
110
105
100
95
90
85
80 Recession Level
75
70
65
60
1972
1974
1986
1988
2000
2002
2014
2016
1976
1978
1980
1982
1984
1990
1992
1994
1996
1998
2004
2006
2008
2010
2012
2018
2020
2022
2024
Year commencing June Source: Westpac-Melbourne Institute (IAESR, IBIS estimates 20/01/15
USA Index of Consumer Sentiment
2 months progressive to December 2015
150
Happy 46% of last 33 years
140
130
120
110
100
90
80
70
60
50 Recession Level
40
30
20
1974
1978
1982
1986
1972
1976
1980
1984
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Year commencing June Source: Conference Board Consumer Confidence Index, January 2016
UK Index of Consumer Sentiment
2 months progressive to December 2015
145 Happy 11% of last 40 years
140 15% of last 20 years
135
130
125
120
115
110
105
100
95
90
85
80
75 Recession Level
70
65
60
55
50
45
1980
1982
1990
1992
2000
2002
2012
1972
1974
1976
1978
1984
1986
1988
1994
1996
1998
2004
2006
2008
2010
2014
2016
2018
2020
OECD EC Indicator 11/01/16
France Index of Consumer Sentiment
2 months progressive to December 2015
130
Happy 7% of last 40 years
125 3% of last 20 years
120
115
110
105
100
95
90
85
80
75
70
65
Recession Level
60
1978
1980
1992
1994
2008
2010
1972
1974
1976
1982
1984
1986
1988
1990
1996
1998
2000
2002
2004
2006
2012
2014
2016
2018
2020
Source: OECD / IBISWorld 11/01/16
Measuring the economy
• Variable based approach to measure economic status
• What do we measure?
– Size
– Growth
– Openness
– Stability
– Equity of distribution
12
13
Economic Indicators
• Gross domestic product (GDP): the total value of all
final goods and services produced in a country in a
given year
• GDP per capita (GDP/Population) = level of economic
development?
• GDP per capita > average income > average consumer
spending
• Shortcomings of GDP as a measure:
– Per capita average takes no account of income
inequality; country may have sizeable middle class
– GDP takes no account of non-market household
production
– No account of quality of life, static measure
14
World GDP Growth
Real growth (PPP), 1950-2016 (F)
12
Purchasing Power Parity (PPP) terms
10 2012 3.0%
2013 3.1%
2014 3.1%
8 2015 2.7% (F)
2016 2.7% (F)
6
4
1950-1969 growth
in US$ market terms
2
Per cent
-2
* The world decline in 2009 was -2.0% when
-4 measured in $US market price terms
-6
-8
-10
-12
1960
1990
2020
1940
1945
1950
1955
1965
1970
1975
1980
1985
1995
2000
2005
2010
2015
2025
2030
IMF/OECD/Economist//IBISWorld: 12/10/15
World’s 30 Largest Economies
2016(F)
Nigeria 1.0%
Thailand 1.0%
Poland 0.9% Purchasing Parity Price (PPP) Terms
Egypt 0.9%
Pakistan 0.8%
Argentina 0.8%
Malaysia 0.7%
Netherlands 0.7%
South Africa 0.6%
Colombia 0.6%
Rest of World
(200 nations)
16.9%
17.8% China*
1.9%
15.8% USA
2.3%
2.3%
2.7%
Japan India
2.9%
4.2% 7.4%
Indonesia 2.5%
Italy 1.9%
South Korea 1.6%
Saudi Arabia 1.5%
Spain 1.4%
Canada
Turkey
1.4%
1.4%
World’s 230 nations
* Includes Hong Kong
Iran
Australia
1.2%
1.0%
US$119 trillion Excl. Taiwan
Taiwan 1.0%
IMF/IBISWorld 24/12/15
Economic Growth: 2015
20 Largest Economies (ppp ranking)
India 7.2
China 6.9
Indonesia 4.7
Poland 3.4
Turkey 3.3
Taiwan 3.2
Spain 3.1
World Growth
World 2.7
2015, 2.7%
S Korea 2.6
USA 2.5
Mexico 2.5
UK 2.4
Australia 2.3
Germany 1.6
Canada 1.1
France 1.1
Italy 0.7
Japan 0.6
Iran 0.5
Brazil -3.4
Russia -3.9
-5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Economist/IBISWorld 08/01/16
Economic Growth: 2016(F)
20 Largest Economies (ppp ranking)
India 7.5
China 6.1
Indonesia 5.0
Poland 3.5
Turkey 3.1
Mexico 2.8
Spain 2.7
World World Growth
2.7
2016 (F), 2.7 %
S Korea 2.6
Taiwan 2.6
Australia 2.5
USA 2.4
UK 2.2
Iran 2.0
Canada 1.9
Germany 1.7
France 1.4
Italy 1.3
Japan 1.1
Russia -0.3
Brazil
-2 -1 0 1 2 3 4 5 6 7 8 9 10
Economist/IBISWorld 08/01/16
Economic Growth: China
Real growth 1950-2016(F)
22
20
18
16
14
12
10
8 8.2% average
6
4
Per cent
8.6% pa average,
2 past 35 years
0
-2
-4
-6
-8
-10
-12 Actually
-14 -27.3%
-16 in 1961
-18
1950
1954
1958
1962
1966
1970
2012
2016
2020
1952
1956
1960
1964
1968
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2014
2018
SSBC/National Bureau of Statistics of China 10/11//15
Economic Growth: USA
Real growth 1930-2015 (F)
20
18
16
14
12
10
8
6 3.5% average
4
Per cent
2
0
-2
-4
-6
-8
-10
-12
-14
1924
1944
1952
1960
1972
1980
1988
2000
2008
2016
1920
1928
1932
1936
1940
1948
1956
1964
1968
1976
1984
1992
1996
2004
2012
2020
Bureau of Economics/IBISWorld: 05/12/15
Per cent
-14%
-10%
10%
14%
16%
18%
-12%
12%
20%
0%
2%
6%
8%
-8%
-6%
-2%
4%
-4%
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
Real GDP growth 1950-2016 (F)
1998
2000
2002
Economic Growth Euro 15
2004
2006
2008
2010
2012
2014
2016
2018
2020
OECD/IBISWorld 10/11/15
2022
Per cent
-8%
-6%
-4%
-2%
-12%
-10%
0%
2%
4%
6%
8%
16%
10%
12%
14%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Real GDP growth 1950-2016 (F)
2000
Economic Growth UK
2002
2004
2006
2008
2010
2012
2014
2016
2.3%
OECD/IBISWorld 10/11/15
2018
average
2020
Economic Growth Germany
Real GDP growth 1950-2016 (F)
16%
14%
12%
10%
8%
6%
4%
Per cent
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
1962
1966
1970
1974
1994
1998
2002
2006
1950
1954
1958
1978
1982
1986
1990
2010
2014
2018
2022
OECD/IBISWorld 10/11/15
Per cent
-4
-8
-6
-2
0
2
4
6
8
-10
-12
12
10
14
16
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
8.5% pa
1961-1976
1970
1972
1974
1976
1978
1980
1982
1984
1986
3.8% pa
1977-1991
1988
1990
1992
1994
1996
1998
Real GDP growth 1950-2016 (F)
2000
2002
Economic Growth Japan
2004
1.4% pa
1992-2007
2006
2008
2010
2012
2014
2016
2018
SSBC/IBISWorld: 10/11/15
2020
Per cent
-8
-6
-4
-2
0
2
4
6
8
-12
-10
14
16
10
12
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
Real GDP growth 1950-2016(F)
1998
2000
Economic Growth India
2002
2004
2006
2008
2010
SSBC/IBISWorld:
2012
2014
2016
10/11/15
2018
2020
Per cent
-6
-4
-8
-2
0
2
4
6
8
-12
-10
10
12
14
16
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
Real growth 1961-2016 (F)
1994
1996
1998
2000
2002
Economic Growth: Australia
2004
2006
2008
2010
2012
2014
2016
2018
3.5% average
SSBC/IBISWorld: 10/11//15
2020
Other economic Indicators
Demand pull
Uncertainty
Hard Landing
Deflation Declining
price
Declining Declining
demand profit
Unemploy-
ment
Inflation 2015
Largest economies CPI
Spain -0.6
Poland 0.0
Taiwan 0.1
UK 0.1
France 0.1
Italy 0.2
Germany 0.2
USA 0.2
Netherlands 0.4
Japan 0.7
S. Korea 0.7
Canada 1.2
China 1.5
Australia 1.6
Average 2.6
Mexico 2.8
India 5.1
Indonesia 6.3
Turkey 7.6
Brazil 9.3
Russia 15.2
-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
The Economist 05/01/16
Interest Rates
10-year Bond Rate, 2015
Japan 0.5
Germany 0.6
Netherlands 0.7
France 1.0
Canada 1.4
Italy 1.6
Spain 1.9
UK 2.0
S. Korea 2.1
USA 2.2
China 2.7
Australia 2.8
Poland 2.9
AVERAGE 4.4
Mexico 6.3
India 7.8
Greece 8.3
Indonesia 8.8
Russia 9.5
Turkey 10.7
Brazil 16.4
-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
The Economist 05/01/16
Current Account Balance
(% of GDP basis) 2015
Netherlands 10.6
Germany 7.9
S. Korea 7.3
Russia 4.7
China 3.1
Japan 2.6
Greece 2.5
Italy 1.9
Spain 0.9
AVERAGE 0.6
France -0.3
India -1.2
Poland -1.4
Indonesia -2.4
USA -2.5
Mexico -2.5
Canada -3.2
Australia -4.1
Brazil -3.8
UK -4.5
Turkey -5.0
-6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12
IBISWorld 05/01/16
Government Net Debt 2015(F)
Largest nations (+ Greece) % of GDP
Iran 10
Russia 11
Australia Zero in 2007 thanks to the
16
Howard/Costello government
Indonesia 23
China 30
S Korea 29
Turkey 35
Netherlands 39
Canada 39
Brazil 43
Medxico 45
Taiwan 46
Germany 58
Poland 59
World 62
India 73
Spain Trouble 85
UK Trouble 93
USA Trouble 93
France Trouble 94
Italy Serious trouble 112
Japan Diabolical trouble 152
Greece Diabolical trouble 184
0 20 40 60 80 100 120 140 160 180 200 220 240
IBISWorld 05/04/15
Government Budget Balances: 2015
Largest Economies (+ Greece) (% of GDP basis)
Germany 0.7
S. Korea 0.3
Taiwan -1.0
Poland -1.5
Turkey -1.6
Canada -1.8
Netherlands -1.8
Indonesia -2.0
Australia -2.4
USA -2.6
Average -2.7
China -2.7
Russia -2.8
Italy -2.9
Mexico -3.4
India -3.8
Greece -4.1
Iran -4.1
France -4.1
UK -4.4
Spain -4.4
Brazil -6.0
Japan -6.8
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4
The Economist/IBISWorld 05/01/16
Taxation In The Major Economies
% of GDP basis 2014
Denmark 49
Belgium 47
Sweden 46
France 45
Finland 44
Austria 43 “Nanny state”
Italy 43 risk?
Germany 41
Netherlands 40
UK 39
Spain OECD average
37
OECD Average 35
NZ 35
Poland 34
Turkey Average 33
AVERAGE 32 Developed
Canada 32 economies
Mexico 30
Russia 30
Switzerland 29
Japan 28
Australia 28
USA 27
Korea S 27
India 18
China 17
Developing
Taiwan 12
Indonsia 12 economies
Iran 6
0 5 10 15 20 25 30 35 40 45 50 55 60 65
Total taxation & other revenue as a share of GDP
Source: IBISWorld 02/09/15
Unemployment 2015
Significant Economies Mainly November
S Korea 3.2
Japan 3.4 Full employment
Taiwan 3.8 <5% of labour force
China 4.1
Mexico 4.2
India 4.9
USA 5.1
Russia 5.2
Indonesia 5.8
Australia 6.2
Average 6.3
Germany 6.4
Canada 7.1
Brazil 7.6
Netherlands 8.3
Poland 9.7
Turkey 9.8
France 10.7
Iran 11.4
Italy 11.8
Spain 21.6
Greece 25.0
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30
The Economist/IBISWorld 05/01/16
Stockmarket Performance: 2015
% change in local currency , to end 2015
Russia 15.9
Italy 7.4
France 4.9
Germany 4.2
Japan 4.2
China (Shang.) 3.8
USA (NASDAQ) 2.1
Netherlands 1.0
Mexico -3.4
Australia -3.9
USA (DJI) -5.1
World (MSCI) -5.8 World (MSCI)
UK (FTSE) -7.5
Spain -10.8
Poland -12.1
Mexico -12.1
India -12.7
Canada -13.0
Taiwan -14.1
Brazil -12.9
Turkey -16.9
Indonesia -21.7
Greece -25.2
Harmony Disharmony
Source: Human development index online, UN
38
What drives the economy?
• Activity of private firms
– Short term: firms mobilise productive resources
– Long term: firms generate technological change (products and
services, processes, strategies, organisations, management
practices)
39
The role of the state
40
Dimensions of The Economic Freedom
Index
• Business freedom
• Trade freedom
• Monetary freedom
• Freedom from
government
• Fiscal freedom
• Property rights
• Investment freedom
• Financial freedom
• Freedom from corruption
• Labour freedom
Source: Heritage Foundation, 2013
http://www.heritage.org/index/ Index of Economic Freedom,
http://www.heritage.org/index/
41
IP Right Index (2013)
Source: http://www.internationalpropertyrightsindex.org/ranking
42
Intellectual Property
from a firm’s perspective
Vision
Vision & Strategy
Vision
Unique Unique
Expert IP
Opinion
Decreasing IP
Value Wisdom Wisdom
Intelligence Intelligence
Increasing
Information Information
Value
Data Data
90% Audited
28.0
Net Assets
80% 40.0
50.0
70% 56.0
63.0
68.0
76.0
60%
50%
40%
72.0 Unrecognised
30% 60.0 IP & Intangibles
50.0
20% 44.0
37.0
32.0
26.0
10%
0%
1 2 3 4 5 6 7
Source: Melbourne Institute & IBISWorld
The evolution of economies
• The past
• The present
– Quaternary industries
• The future
– Quinary industries
Australia’s Ages Of Economic Progress
GDP @ Constant F2011 Prices 1788-2015 and onwards
2200
Hunting Agrarian Industrial Infotronics Enlightenment
2000 Age Age
Age Age Age ?
1800
1600
1400
Hunting,
trapping,
fishing,
crafts,
religion
Agriculture,
Mining,
Banking,
Commerce
Industrial
An Industrial Age is when
Manufacturing and Construction
dominate the economy
(c. 30-50%+ of GDP)
Quaternary
service
industries
Quinary
service
industries
1200
1000
Transport the
major utility Age
Power the major utility
(electricity) and telephony
IC&T
Imbedded
intelligence,
neural network
programs.
800 More electronic
“guardian angels”
600 and other new
technologies
400
200
0
1780
1790
1800
1860
1870
1880
1930
1940
1950
1960
2010
2020
2030
2040
2090
2100
1810
1820
1830
1840
1850
1890
1900
1910
1920
1970
1980
1990
2000
2050
2060
2070
2080
Year, ended June IBISWorld 08/07/15
Changing Mix of Industries in Australia
Shares of GDP by Industry Division, 1800-2050
1820
1860
1800
1840
1880
1900
1920
1940
1960
1980
2000
2020
2050
100%
Agriculture
Primary Mining
Sector
90% Manufacturing
Utilities
80% Secondary Construction
Sector W’Sale Trade
Retail Trade
70%
Transport, Postal
Tertiary
Sector Media & Telecom
60%
Finance & Insurance
Rental, Hiring. R Estate
50%
Dwelling O’Ship
Note: At market prices to 1940, at factor cost thereafter Source: N.G Butlin, ABS & IBISWorld 8.01.15
Australia’s Current Industry Mix
Shares of GDP, in F2014 price terms Year to September 2015
Pers. & Other Serv.
Cult & Rec. Serv. Agriculture
Hospitality 0.8% Mining
2.2% Utilities
8.6% 2.7%
7.7% Construction
Govt. Adm. 5.2%
2.6%
8.7%
Finance &
Insurance
Admin. &
Support
Services
Rental,
Hiring & Info Media & Sectors
Real Estate Communications Primary
Secondary
Tertiary
Quaternary
GDP $1629 billion Quinary
Implementers
Middle No Longer
Management Mostly
Required
outsourced
Coordinators
& Operatives
Supervisors No Longer
– Transportation costs
– Cultural similarity
– Migration of population
– Psychic distance
– Natural environment
54
The World’s Economic Regions In 2016
Share of World GDP (ppp basis)
Eastern
W&C Europe Europe
North 17.7% 3.9%
America
19.1% Indian
ME S-C
7.2% 8.6%
Asia
Pacific
Africa 32.3%
5.1%
C&S
America
6.1%
4.0%
6.0% Africa
11.5%
North
America
23.0%
Indian
Asia S/C
Pacific 23.1%
31.0% Western Asia
E. Europe 3.6%
Europe Pacific
19.1% 33.6%
12.7%
22.8% 18.0% Nth America
2.0% 24.0%
30.5%
7.0% C & S America
3.5%
6.8%
33.6% 6.7% 14.5% Western Europe
Vietnam Singapore
Singapore
Others
1.0 %
1.3% Others
1.0%1.4%
1.5%
44.7% China
10.5% Japan
18.6%
India
Taiwan
0.9% H/K
2.5%
$US 47 trillion
Wikipedia/IBISWorld 17/01/16
Asia Growth 2015
Major Asia Pacific and Indian S-C nations (ppp ranking)
Myanmar 8.5
Laos 7.5
India 7.6
Cambodia 7.0
China 6.9
Sri Lanka 6.5
Bangladesh 6.5
Vietnam 6.5
Philippines 6.4
Pakistan 5.7
Malaysia 5.4
Nepal 5.4
ASIA 5.3
Indonesia 4.7
Thailand 3.4
Taiwan 3.2
Mega-Regions Growth
Singapore 2.9 Asia 5.3%
World (8 regions) 2.8%
NZ 2.8 M.E & Africa 2.0%
N America 2.4%
S Korea 2.5 C&S America 0.5%
W&C Europe 1.6%
Hong Kong 2.4 E Europe -3.9%
Australia 2.3
Japan 0.6
-2 -1 0 1 2 3 4 5 6 7 8 9 10
Growth % (GDP)
IMF/IBISWorld: 05/12/15
Regional Economic Integration
• Regional economic integration – agreements between
countries in a geographic region to reduce tariff and
non-tariff barriers to the free flow of goods, services,
and factors of production between each other
60
Five forms of integration
Removal of Coordination Free Members
trade barriers of taxes, movement of do not
within regulations in labour and regulate
resource capital currencies
NAFTA/LAFTA
allocation
Free Trade
Area
Andean Community
Customs
Union
Southern common market
Common
market
EU & the Euro
Monetary/
Economic
union
Political Merger of political barriers
Union
61
Five Levels of Economic Integration
Political Union
USA (1788)
Australia (1901)
Economic Union
Common Market
EU (1993)
Customs Union
EEC (1957)
NAFTA (1994)
Mercosur (1991)
Free Trade Area
AFTA (2003)
APEC (1989)
62
Regional Economic Integration: Benefits
• Trade creation
– Trade creation occurs when low cost producers
within the free trade area replace high cost domestic
producers
63
Regional Economic Integration: Drawbacks
• Trade diversion
– Trade diversion occurs when higher cost
suppliers within the free trade area replace lower
cost external suppliers
• Shifts in employment
64
Implications for Managers
• But
– Within each grouping, the business environment
becomes competitive
– There is a risk of being shut out of the single market
by the creation of a “trade fortress”
65
Re-cap of Key Points
2. The rules of the game and good players are what drive
the economic growth
66