Brexit adds to gloom over long‐term growth prospects

• The prospect of continued weak productivity growth and less support from rising labour supply means we are relatively gloomy about medium‐term growth prospects. Our forecasts show potential output growth of just 1.6% a year from 2017–2030. This would be well below the average of the decade prior to the financial crisis (2.7%) and in line with our estimate for the 2007 and 2016 period which included the global financial crisis.
• We have become more pessimistic about the extent to which growth in total factor productivity is likely to accelerate. This is partly due to a judgement call that more of the weakness since the financial crisis reflects structural factors. Brexit is also likely to weigh on long‐term prospects, resulting in a degree of trade destruction and lower FDI inflows than would be the case were the UK to remain in the EU. Brexit is also likely to result in less capital deepening.
• Demographic factors also point to weak potential output growth moving forwards. High levels of inward migration have mitigated the impact of an ageing population recently. However, immigration is likely to fall sharply over the next decade, as first an improving European labour market reduces incentives to migrate and then the UK Government adopts more restrictive immigration policy. We are also coming into a period where there will be fewer increases in state pension age than of late.
• Since the mid‐1990s there has been a surge in the number of people going to university, resulting in strong contributions from human capital. But this will be less important moving forwards as university admissions reach a ceiling.
• Stronger growth in potential output would be possible if Brexit results in trading arrangements which are closer to the status quo, or if policy is more ‘liberal’, than our baseline assumptions.

     

The UK long‐term outlook

The question of the size of the output gap is crucially important to both fiscal and monetary policy. UK GDP ended 2013 around 1¼% below its pre‐crisis peak and were we to assume that potential output has continued to grow at historic rates since the financial crisis, this would suggest an output gap of 15% of potential GDP. However, it appears likely that the financial crisis has inflicted some structural damage to potential output which will never be reclaimed, implying a smaller output gap…     

Housing slump could cut world growth to decade‐low

• ? A combined slump in house prices and housing investment in the major economies could cut world growth to a 10‐year low of 2.2% by 2020 – and to below 2% if it also triggered a tightening in global credit conditions.
• ? In such a scenario, inflation would remain well below target in the main economies, and US Fed rates would be up to 100 basis points lower than in our baseline by 2021.
• ? Signs of a global house price downturn are already visible, with around a third of our sample of economies seeing falling prices and world residential investment starting to decline. High house price valuations add to the risk that this downturn will deepen in the coming quarters, hitting consumer spending.
• ? Using the Oxford Global Economic Model, we find that a 10% fall in house prices and an 8% fall in housing investment both cut growth by around 0.3%‐0.4% across regions. Adding a sharp Chinese downturn, such as that seen in 2015, has a large additional impact on growth in Asia .

     

The short‐term impact of Brexit

• A scenario run on the Oxford Global Model suggests that Brexit would leave the level of UK GDP 1.3ppt lower by Q2 2018 compared with our baseline forecast that the UK votes to stay in the EU. A vote to leave would mainly shock business confidence but consumers would be adversely affected too. Exporters in price‐sensitive sectors would benefit from a weaker exchange rate.
• Market pricing suggests that sterling could initially fall by around 15% before recovering some of its losses, while the heightened uncertainty would also be expected to drive a sharp drop in equity prices in H2 2016.
• Brexit would present something of a dilemma for policymakers. While a weaker pound would cause inflation to initially spike upwards, we would expect the MPC to look through this and cut Bank Rate in order to support activity. And with the UK likely to retain its reputation as a safe haven, this would also see gilt yields stay lower for longer.
• Weaker growth would also put the Chancellor in breach of the fiscal mandate, though we would expect him to plead extenuating circumstances, rather than tighten policy and potentially exacerbate the slowdown.

     

UK medium‐term prospects: steady,but unspectacular

• Rapid expansion of the labour supply and robust business investment means that potential output is likely to have grown strongly last year. Therefore, based upon the latest data for GDP, we estimate that the output gap only narrowed very slightly in 2014, ending the year at 4% of potential output.
• The prospects for potential output growth are favourable, with the labour supply set to be boosted by sustained strength in inward migration and the staged increase in the State Pension Age, and robust growth in business investment continuing to deepen the capital stock.
• This will provide the conditions for relatively strong growth and low inflation over the medium term, with GDP growth expected to average 2.6% a year from 2015–19. This is some way below the average of the decade prior to the financial crisis, but it would represent a clear step up on the average growth rate achieved between 2007–14.
• Our estimate of the output gap is much larger than that of the OBR. This suggests that the UK's structural deficit is smaller and that the degree to which fiscal policy needs to be tightened may not be as great as the OBR estimates.

     

Eco‐efficiency and dematerialization: Scenarios for new industrial logics in recycling industries,automobile and household appliances

The environmental field has been continuously overloaded with new concepts in the area of environmental impact such as environmental space, ecological backpack, carrying capacity, ecological footprint, dematerialization and eco‐efficiency. The latter two concepts have a particular relevance to corporate environmental management. This article discusses the concepts of dematerialization and eco‐efficiency with respect to their implications for industry logics. It is based on a project that was initiated by the Swedish EPA. Within the project we used the scenario technique to explore the future industry logics of recycling industries related to the automobile industry and household appliances. One scenario, ‘business as usual’, indicates a focus on products with incremental improvements and a stepwise departure from today's practices. The other scenario, ‘dematerialization’, indicates a focus on functions and needs, and a significant departure from today's practices. Concluding from the empirical analysis of present industry logics, based on interviews and data analysis in specific industries, we realized that changes in industry logics and business systems are inevitable, if industry takes a responsibility for the whole life cycle seriously. Accordingly, we propose the transformation of business systems as a research agenda for the future. Such an agenda follows ecologically motivated transformation and translation processes throughout the whole system of actor networks and action nets of society and creates an enhanced understanding of the emerging processes of corporate environmental management. It also considers different institutional arrangements between those actors that constitute the system as a whole. Copyright © 1999 John Wiley & Sons, Ltd and ERP Environment.     

Export specialization and economic growth around the world

This paper empirically investigates the extent to which technological characteristics in exports affect the patterns of trade-led economic growth across countries. Data of the Balassa index, which captures a country's revealed comparative advantage, are obtained for industries classified by technological intensity. Regression results based on a sample of 71 countries since 1970 suggest that economies have tended to grow more rapidly when they have increasingly specialized in exporting high-technology as opposed to traditional or low-technology goods. The findings are robust to the presence of various control variables as well as the consideration of parameter heterogeneity and in the endogeneity of export structures.     

Public‐private partnership: Elements for a project‐based management typology

The polysemic concept of public‐private partnership (PPP) covers a great diversity of institutional arrangements. In this paper, we propose a typology based on the management of public projects that constitute partnerships with private firms. Our typology is founded on two key variables: (1) the proximity of the target and (2) the capacity to generate projects. We can then identify four distinct models of PPP: situational, elementary, symbiotic, and forward‐looking. The management challenges, the risks, and the major issues particular to each type of PPP are described in order to enlighten management teams and contribute to the production of useful knowledge in the field.