New PwC ESCAPE Index – 5 striking findings

By John Hawksworth

We have today launched our new ESCAPE index. This provides a holistic assessment of socio-economic progress between 2000 and 2012 for 42 of the largest advanced and emerging economies, together accounting for around 85% of world GDP.

Full details of the index results are available from our website, but here I’ll focus on five points from the analysis that I found particularly striking:

1.       Growing gap between Northern and Southern Europe

The European economy sometimes gets a bad press these days, lagging behind the dynamism of both Asia and the US.  But our index suggests a more nuanced picture is emerging, with Northern European economies such as Sweden, Switzerland, Netherland, Finland, Denmark and Germany dominating the top ten.

By contrast, Southern European economies such as Italy, Spain, Portugal and Greece were always much more lowly ranked in terms of the broad range of economic, social and political indicators considered in the index. The crisis has just accentuated this relative structural weakness, pushing Italy, Spain and Portugal out of the top 20 and sending Greece well down into the emerging market league in 38th place in 2012 (as against 25th place in 2000).

These deep structural weaknesses should give us pause before declaring the Eurozone crisis is over, even though recent economic news has clearly been better.

2.      Central and Eastern Europe the fastest rising region since 2000

One striking good news story relates to Central and Eastern Europe (CEE), which has shown the strongest rise up the index since 2000 of any major region, as the chart below shows.

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Poland has led the charge here and, in 21st place in the latest index results, is now nipping at the heels of France. Russia, Romania and Ukraine have also shown strong upward momentum, although their biggest gains were between 2000 and 2007, with more modest rises since then.

3.      Saudi Arabia leaps into the advanced economy club

The most dramatic single riser in the index, however, has been Saudi Arabia, up from 26th place in 2000, which is still in ‘emerging market territory’, up to 12th place in 2012, comfortably in the advanced economy club.

The sharp rise in global oil and gas prices over this period no doubt helped to fuel this progress on the economic front, but it is not the whole story. There is also evidence of broader improvement on social measures such as education and health, as well as rapid adoption of mobile technologies. This parallels positive trends in other Gulf economies in recent years.

4.      China edges ahead of the US

We know China has been growing at an astonishingly rapid pace for the past three decades and will probably overtake the US as the world’s largest economy sometime within the next 5-15 years depending on the exchange rates used to compare GDP levels. But our index suggests that China has made particularly strong relative progress since 2007, as it has sailed through the global financial crisis relatively unscathed, whereas the US and other advanced economies have fallen back.

As its new leadership recognises, China faces a range of transitional challenges in cementing its place in the advanced economy club, but history is on its side. China has the longest lasting civilisation of any country for the past 2,500 years, with what seems likely to be a temporary ‘blip’ between around 1750 and 1980 when the UK and other Western economies were first on the Industrial Revolution steam train.

Our index suggests that, based on indicators ranging from education and trust to take up of digital technology and institutional stability, China has fundamental strengths that should sustain its progress beyond the recent phase of investment-led catch-up growth.

5.      Brazil, India and the MINT countries still not in the top 30 on our index

We have mentioned Russia and China above, but the picture for the other two BRICs (Brazil and India) and Jim O’Neill’s latest acronym the MINTs (Mexico, Indonesia, Nigeria and Turkey) is rather less impressive to date. None of these six economies yet makes our top 30, although all have shown positive progress in terms of absolute index scores since 2000.

Our own view, as set out in past World in 2050 reports, is that all of these economies have great long term potential. But recent market turbulence affecting several of these countries suggests that this will be a bumpy ride. Our index provides an explanation for this in terms of outstanding structural problems relating to social, economic and political institutions that will need to be resolved if their fantastic long-term potential is to be realised.

John Hawksworth:
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