EU, UK and the world
It all started with coal and steel 1951 and today, only 65 years later, EU28 as a whole is the worlds largest economy when measured by GDP (PPP = purchasing power parity correcte). This picture is, however, fast changing as China is closing in on both USA and EU, surpassing both 2016.
EU leaders on the other hand is Germany, France, United Kingdom, Italy and France. In this picture Greece is only a minor part.
Brexit?
Measured by GDP UK represent 13.6 % of EU total GDP. But this is not the whole story: United Kingdoms financial sector is one of the UK’s largest industries. It contributed £129bn to the UK economy in 2011, 9.6% of that year’s national output. Professional services closely connected to the financial sector such as accountancy, legal services, management consultancy and maritime services contributed a further 4.9%. The contribution of financial services to the UK economy is higher than the US share of 7.6% and Japan’s 4.9% – and much higher than in France and Germany where financial services contribute 4.7% and 4.2% to GDP respectively. This is not because the British use more financial services: it is because the UK is a leading provider of financial services globally (source).
So: Embedded in those 13.6 % of EU's GDP is a much greater share of EU financials. Some estimates it to be 10-15 % of EU's financials (financial services) being at risk of leaving the EU. This ofcourse is the back bone holding a Brexit together. Or, at least, so we could think.
For EU: Not only financials are at risk
In 2014 UK contributed 16 % (1 489 bn USD) of total national intangible capital impacts in EU GDP formation (9 284 bn USD). Also in this UK is a vital part of central Europe, one of top performers on the continent.
In 2014 impacts of national intangible capital NIC in GDP formation for UK was 62.69 %. This is in phace with Germany (61.36 %).
How strong is UK's NIC?
Looking on overall NIC development for UK a clear distiction between strenghts and weaknesses can be seen: Strenghts are in the area of human and process capital and weaknesses can be seen in the area of market and renewal capital.
More worryingly: market and renewal capital impacts are not getting much stronger either:
How efficient is UK's NIC?
However: Efficiency of UK NIC experienced a significant dipp ending 2008. A slight rapid recovery seem to have occured, but has flattend out and efficiency of renewal capital continue weakening.
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Declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital. To understand the source we need to look into NIC trade values and spillovers from ... EU. This all raises the question: Can UK stand a Brexit without EU?
Summary:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
This is a developing story: Next update 12:00 CET 01/03/2016.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Export and import = Import and export of NIC and NIC spillovers
Recap:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
Trade is not only exchange of goods, exchange of services as goods. All trade is also exchange of values and happens always both ways: When importing or exporting both parties always benefit values as spillovers.
To get a crude measure for this positive spillover strenghtening NIC we calcualte a NIC trade value = Weighted average of export/import trade partners NIC * share of trade. I.e. when you trade you benefit your trade partners values (NIC).
Comparing NIC trade values for export and import it turns out that in general NIC export value is some 5-10 % higher than NIC import value. This is a reflection of a simple fact: We import and add value and then we export. This is a basic mechanism. More intresting, however, is the question: Do we trade with high or low NIC partners? Trading with high NIC partners yield higher positive spillover effects.
Looking at the picture for UK: Spillovers are significant for UK as UK NIC trade value is well above average (and well above USA and Germany for both export and import)
Not focusing on index values, but looking at the same picture for UK but measuring NIC trade value using partners NIC impacts as the base don't radically change the picture: UK's trading partners grant UK significant NIC spillovers
To further evaluate value of NIC spillovers we compare NIC trade value to country own NIC simply by calculating NIC trade value / country NIC percentage (%) ratio. The higher this ratio is, the higher the benefits and the importance for the country: For UK importance is evident
This once more rises the question: How important is EU for UK and UK's national intangible capital, NIC, when EU is UK's biggest trading partner?
Summary:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
- UK's trade strucure gives UK significant NIC spillovers (when compared to other countries) which in part explain why UK perform well when it comes to NIC impacts. However, this NIC (spillover) is "trade/co-operation dependent" and mostly linked to EU.
This is a developing story: Next update 12:00 CET 02/03/2016.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Strenghts and weaknesses in UK clearly - and worryingly - divided
Recap:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
- UK's trade strucure gives UK significant NIC spillovers (when compared to other countries) which in part explain why UK perform well when it comes to NIC impacts. However, this NIC (spillover) is "trade/co-operation dependent" and mostly linked to EU.
Strenghts and weaknesses
Calculating strenghts and weaknesses we take the following steps: For each driver (indicator) we calculate
- Distance to group average, i.e. D1 = value - average(group) with a weight = 1. Motivation: Internal weaknesses and strenghts need to acknowledge intrinsic differences between different NIC capital groups.
- Distance to world average for driver, i.e. D2 = value - average(world) with a weight = 2. Motivation: Internal weakness / strenght does not automatically imply that this is true when compared to world averages.
- Distance to NIC trade value, i.e. D3 = value - NIC trade value with a weight = 3. Motivation: Strenghts and weaknesses need to be measured in the economic realm of production and trade as country specific.
- Weighted distance, i.e. WD =(D1*1 + D2*2 + D3*3)/6
Weights are here chosen to reflect what matters: What matters more than just high values (in group) is that the value is competitive (vs world) and generates economic activity (competitive trade).
We believe this is a more true picture of how strenghts in national intangible capital is distributed. Still, we ask once more:
When looking for strenghts and weaknesses: are drivers potential (index values), impact (as percentage shares in GDP formation and growth) and efficiency (as output/input ratio for impacts) equally important?
One can argue that they are equally important and should be given equal weights and analysed separately. This is OK and is certainly done. However, if we seek a compact list of weaknesses and strenghts combining potential, impact and efficiency (dynamically) we could give impact greatest weight followed by efficiency and potential. The rationale is that focusing on improving any (weak) driver will innevitably also strenghten its efficiency and its potential, but benefits in impacts will be fastest and strongest when initially impact has highest selective power.
Giving impact, efficiency and potential weights 3, 2 and 1 (and calculating Doubble Weighted Distance DWD) we can picture how strenghts and weaknesses is distributed over the various NIC capitals in UK:
UK strenghts: Human and process capital
UK weaknesses: Market and - most worryingly - renewal capital
The rest is easy: We can now pin point strenghts and weaknesess by selecting top 12 and bottom 12 drivers by their calculated DWD values. We could even make shorter selections, but here are strongest 12 drivers for UK 2014 and weakest.
Strenghts and weaknesses in detail
How, then, is really weak renewal capital working in UK? The answer is obvious:
UK weak renewal capital: Works via strong human and process capital & benefit from NIC trade value spillovers
Summary:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
- UK's trade strucure gives UK significant NIC spillovers (when compared to other countries) which in part explain why UK perform well when it comes to NIC impacts. However, this NIC (spillover) is "trade/co-operation dependent" and mostly linked to EU.
- Strenghts and weaknesses for UK's NIC are "bipolar": Evident strenghts are human and process capital, weaknesses market and renewal capital. Weak renewal capital benefit from secondary strenghts, (EU) spillovers, human and process capital, but raises concerns facing a Brexit, as renewal capital is a crucial main driver for developed countries.
This is a developing story: Next update 12:00 CET 03/03/2016. Next we look into UK NIC Tipping point projections.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Tipping points
Recap:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
- UK's trade strucure gives UK significant NIC spillovers (when compared to other countries) which in part explain why UK perform well when it comes to NIC impacts. However, this NIC (spillover) is "trade/co-operation dependent" and mostly linked to EU.
- Strenghts and weaknesses for UK's NIC are "bipolar": Evident strenghts are human and process capital, weaknesses market and renewal capital. Weak renewal capital benefit from secondary strenghts, (EU) spillovers, human and process capital, but raises concerns facing a Brexit, as renewal capital is a crucial main driver for developed countries.
NIC Tipping points
We define a NIC Tipping point as a point on a time line (future) where NIC impacts in GDP formation and growth ceases to grow, i.e. NIC impact stagnates on a certain level.
In order to estimate the existance of a tipping point (in near or far future) we calculate a NIC TP value for each driver (indicator) = annual projected increment on impact in GDP. This is performed by analysing near past and far past behavior of the driver (i.e. we perform trend analysis of drivers impact). As in SWOT analysis we acknowledge intrinsic, NIC trade value and global development related impact factors for each driver.
Schematically a positive TP value granting growth looks like this:
As you notice the projection is then calculated using best performer as a target / optimal value for impact (strenghtend by 10 %). All values are calcualted on a year to year basis starting 2001. Schematically a negative TP value causing negative growth (declining impacts) looks like this:
Finally we add together (aggregate) the net cumulating effect(s) of all drivers and come to a NIC Tipping point projection for each country. Here NIC Tipping point base projection for UK 2014:
In the base projection the Tipping point is beyond 2020, not much, but beyond. However, if a possible Brexit would have a slight negative impact on NIC trade values and spillovers the situation changes. Estimating a (moderate) 1 % negative shock would drag the NIC Tipping point for UK to the end of this decade, in the vicinity of no later than 2019 +/-.
NIC Tipping point if Brexit has a (1 %) negative impact on NIC trade values and spillovers
As NIC TP values are calculated for all drivers (indicators) we can pin point "strenghts" (we here chose 3 strongest/weakest from each capital group):
UK NIC Tipping point strenghts 2014
... and UK weaknesses:
Weak Tipping point output drivers sets future NIC impacts (output performance) at risk for UK:
Comparing strenghts and weaknesses
Input and enhancing (basic and process) drivers balance strenghts and weaknesses (net effect however close to 0), but output performance (achievement) drivers are losing their positive growth boosting impacts.
This risk may be even greater if a Brexit have negative (shock) impacts on NIC trade values and spillovers. At risk are specially market and process capital and generally output drivers.
As renewal capital (today) perform on a rather low level its impact in the NIC Tipping point projection is minor, less (changes and development of strong drivers always more essential in TP analysis). However: Strenghtening present weak renewal capital is a grand opportunity for Great Britain.
Summary:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
- UK's trade strucure gives UK significant NIC spillovers (when compared to other countries) which in part explain why UK perform well when it comes to NIC impacts. However, this NIC (spillover) is "trade/co-operation dependent" and mostly linked to EU.
- Strenghts and weaknesses for UK's NIC are "bipolar": Evident strenghts are human and process capital, weaknesses market and renewal capital. Weak renewal capital benefit from secondary strenghts, (EU) spillovers, human and process capital, but raises concerns facing a Brexit, as renewal capital is a crucial main driver for developed countries.
- Base projection for NIC Tipping point is slightly beyond 2020 +. Tipping point will most likely be caused by weak output performance drivers, primary within market and process capital, renewal capital not to forget. Brexit may drag NIC Tipping point for UK nearer the end of this decade, 2019 +/-.
This is a developing story: Next update 12:00 CET 04/03/2016. Brexit: Can UK take it? Winners and losers? We wrap it up from EU and national intangible capital NIC point of views.
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.
Future of EU: Integrate or disintegrate
Recap:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
- UK's trade strucure gives UK significant NIC spillovers (when compared to other countries) which in part explain why UK perform well when it comes to NIC impacts. However, this NIC (spillover) is "trade/co-operation dependent" and mostly linked to EU.
- Strenghts and weaknesses for UK's NIC are "bipolar": Evident strenghts are human and process capital, weaknesses market and renewal capital. Weak renewal capital benefit from secondary strenghts, (EU) spillovers, human and process capital, but raises concerns facing a Brexit, as renewal capital is a crucial main driver for developed countries.
- Base projection for NIC Tipping point is slightly beyond 2020 +. Tipping point will most likely be caused by weak output performance drivers, primary within market and process capital, renewal capital not to forget. Brexit may drag NIC Tipping point for UK nearer the end of this decade, 2019 +/-.
Growth in EU
Finally: EU growth is projected to pick up. Take a look at this video:
EU GDP growth / Forecasts for 2015 - 2017At the same time: Strong UK GDP growth eases but remains solid, current account and public budget balance remains negative. Take a look at this projection:
UK GDP growth / Forecasts for 2015 - 2017And impacts of national intangible capital NIC in the Euro zone gets stronger:
Is this the time for Brexit?
Brexit or Mix it?
Strenghts in the European Union are basically founded on three corners (there may be more, but these to mention here):
- Free movement of residents and work (read: NIC human and renewal capital)
- Integrated and free domestic/EU-home markets (read: NIC market and process capital)
- Regulated and EU member states endorsed common financial markets (read: NIC financial capital)
All three are in their making. However, to understand their socio-economic embedded power we can only ask: Where would USA be if Texas made a Texit? Followed by Florida Flexit ...?
We made a projection for EU28 where we increased impacts of free movement, NIC (internal) trade values and financial capital with 1 %. The projection changed EU NIC future drastically:
This projection puts EU28, second greatest economy in the world 2016, in league with USA NIC:
And to achieve this EU need UK and UK need EU.
Summary:
- UK perform on a rather high level, but declining efficiency and some notable weaknesses don't explain relatively high impacts of UK's national intangible capital.
- UK's trade strucure gives UK significant NIC spillovers (when compared to other countries) which in part explain why UK perform well when it comes to NIC impacts. However, this NIC (spillover) is "trade/co-operation dependent" and mostly linked to EU.
- Strenghts and weaknesses for UK's NIC are "bipolar": Evident strenghts are human and process capital, weaknesses market and renewal capital. Weak renewal capital benefit from secondary strenghts, (EU) spillovers, human and process capital, but raises concerns facing a Brexit, as renewal capital is a crucial main driver for developed countries.
- Base projection for NIC Tipping point is slightly beyond 2020 +. Tipping point will most likely be caused by weak output performance drivers, primary within market and process capital, renewal capital not to forget. Brexit may drag NIC Tipping point for UK nearer the end of this decade, 2019 +/-.
- Brexit would seriously hamper EU development. Likevise: UK would lose present and future benefits from deepening EU integration.
NIC on the week: Next update 12:00 CET 07/03/2016.
Next week developing story: India: "IMF sees India growth picking up".
Stay tuned!
Any questions? Mail a NIC team member or mail your question to: nic research.
NOTE:
Till official release and publication of NIC 2016 Report in April (2016) we elaborate only NIC 2001-2013/14 public data based analysis and results, i.e. data available to all. Customers find latest NIC 2016 data and analysis results on login area. However: Elaborations and results presented here are tried to be in line with results you will find in the NIC 2016 Report and database.