The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox! In this week’s blog: Australian economic briefing UK economic briefing International economic briefing Australian economic briefing by David Rumbens This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia. Australia’s Global Competitiveness Australia moved up in the latest World Economic Forum’s Global Competitiveness Index to rank 21 (up from 22 last year). But despite the improvement, there are still areas where government and business could play a bigger role in driving innovation and competitiveness. The World Economic Forum’s Global Competitiveness Report 2017-2018 assesses the competitive landscape of 137 economies using the Global Competitiveness Index which ranks countries according to 12 ‘pillars’ that include macroeconomic, technological and political indicators. The Index is collated through surveys and questionnaires from business leaders in participating countries, with the raw data weighted relative to a country’s level of development. In the 2017-18 report, the top ranked countries were Switzerland, United States, Singapore, the Netherlands and Germany. The annual report is a great benchmark for assessing competitiveness, which is a key driver of productivity, innovation, and prosperity. It also sheds light on where Australia’s future opportunities lie, as well as revealing potential areas for improvement. The chart below indicates how Australia performed against each of the 12 pillars. Australia scored solidly in the basic requirements pillars (including health and education), ranking 18th overall out of 137 countries. Led by our financial markets and higher education, Australia performed best in the efficiency enhancers pillars, with an overall ranking of 13th. On the flip side, we have the most work to do in innovation and sophistication, ranking 27th overall. Chart: Australia’s Global Competitiveness Index Scores Source: World Economic Forum Australia scored strongly in health and primary education, supported by high quality primary education, low incidence rates for most diseases, and a high life expectancy. Higher education also performed strongly, and Australia tied first for the quantity of education available (but even in this high performing area there is room for improvement, with internet access in schools and availability of specialised training services lagging behind). Financial market development was also a highlight for Australia, which ranked 6th out of the 137 countries – with trustworthiness and confidence in Australia’s financial market second only to New Zealand. Efficiency in the financial market was an underperformer, with access to venture capital and affordable financial services areas where the government could focus on boosting Australia’s competitiveness. The biggest drag on Australia’s ranking was a deterioration in the infrastructure score, which fell from 5.6 to 5.3. This pushed Australia down to 28th, from 17th previously. A weaker score for the quality of electricity supply further exacerbated the ongoing decline in communications infrastructure. The Federal government has been taking steps to improve electricity supply after numerous reports from regulators and other energy bodies flagged the risk of energy shortfalls in coming years. Australia also continually underperforms on the innovation front, slipping one place to 27th in the 2017-18 rankings with a score of just 4.5 out of 7. The quality of our research institutions and capacity for innovation rank highly within the pillar, supported by increases to government funding initiatives and tax breaks for early stage investors. There are, however, areas with room for big improvement including university-industry collaboration in R&D, and government procurement of advanced technology products (which scored just 3.3 out of 7). For more information on the Australian brief, please contact the co-authors, David Rumbens and Emily Dabbs. UK economic briefing by Ian Stewart A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/ The surprising decline of uncertainty The financial crisis seemed to mark a step change towards higher levels of uncertainty and slower growth rates. A less certain world meant less risk taking and fewer big purchases. Companies and households battened down hatches, focusing on reducing their costs and building up savings. Ten years on from the crisis we have become more accustomed, though not immune, to uncertainty. The cliché is that the only certainty is uncertainty. 2016 was a year of high uncertainty. Stanford University’s news-based measure of uncertainty reached multi-year peaks in several major economies in the course of the year. The UK’s Brexit vote last June pushed the index above levels seen in the financial crisis. In the US uncertainty soared on the back of the change in administration. In China fears of an economic crash had a similar effect. In the euro area the culprits were the spectre of deflation and the rise of right wing political parties. It’s a different story today. The Stanford uncertainty indices for the UK, US, China and the euro area are well below their recent peaks. This doesn’t prove that the world is more stable – but it does show that journalists aren’t writing as much about uncertainty. It’s a similar story in financial markets. The VIX index, a measure of equity volatility which is used to gauge financial risk, is running close to the lowest level in 25 years. What’s going on? The fall in the Stanford indices seems to reflect a perceived decline in a number of specific risks. Fears of a hard landing for China’s economy and of electoral break-throughs for Europe’s right wing parties have abated (the latter admittedly somewhat tempered by the AfD’s strong showing in Germany’s elections). In the US President Trump has been constrained by Congress and the courts. UK growth has slowed since last year’s Brexit vote, not gone into free-fall as some predicted and many feared. Perceptions of risk have probably also been dampening by the upturn in the global economy. It has come a little faster than expected, with Japan and the euro area outperforming expectations, and growth has been spread between emerging and developed nations. Financial markets seem to have bought into the idea of continued recovery. Riskier assets, such as emerging market equities and currencies, have been in demand. This is not to say that the happy days are here again. The Stanford and VIX measures are partial and imperfect measures of uncertainty. At best they approximate to a snapshot of current perceptions of risks among some participants. Those perceptions change quickly, and they are not always right (they weren’t, for instance, in 2006 just ahead of financial crisis). Far from being reassured by the low level of the VIX, some commentators see it as a worrying sign of financial market complacency. Uncertainty could surge just as quickly as it dropped from last year’s highs. Despite these caveats I think there are conclusions to be drawn. Not all risks materialise and we forget those that don’t – we just move on to worrying about today’s risks. At least through the lens of uncertainty news flow the world looks less risky than a year ago. And though I could – and at some stage will – write a briefing on everything that might go wrong, global growth is moving up. Sitting in a slowing UK economy, and with all eyes on Brexit, it’s worth bearing all of this in mind. OUR REVIEW OF LAST WEEK’S NEWS The FTSE 100 ended the week up 0.8% at 7,373 Markets see an increasing chance that the Bank of England will raise interest rates at its November meeting. International economic briefing by Ian Stewart Economics and business Bank of England Governor Mark Carney said that UK interest rates could rise in the “relatively near term” The pound made further gains against the dollar on growing expectations that UK interest rates will rise soon Revisions show the UK economy has grown more slowly than previously estimated since the Brexit vote UK consumer debt continued to rise at a near double-digit pace in August The Bank of England’s Financial Policy Committee warned of rising levels of financial risk, especially outside the UK The FT reported the value of global private equity deals rose in the first nine months of the year to its highest level since 2007 Dyson, the UK producer of household electrical products, announced it is working on an electric car to be launched in 2020 Japanese Prime Minister Shinzo Abe called a snap election for October to take advantage of his large poll lead Euro area business and consumer confidence rose to its highest level in a decade in September A report by Dutch banks ING estimates that progress in 3D printing could wipe out one-quarter of world trade wiped out by 2060 President Trump was reported as planning to announce his choice for the new Chairman of the Federal Reserve within two to three weeks Donald Trump unveiled a proposal to cut the US corporate tax rate from 35% to 20% Saudi Arabia announced that women would be allowed to drive for the first time in the Kingdom Oil prices rose to their highest level in two years on strong demand and threats to supply from Kurdistan The UK’s oldest postcard publisher, J.Salmon, is set to close down after 140 years, partly due to the popularity of ‘selfie’ sharing on social media London house prices fell for the first time since the financial crisis in the third quarter, according to Nationwide Brexit and European politics Mark Carney said that Brexit will likely cause “weaker real income growth” in the UK UK Brexit Secretary, David Davis, said that Brexit negotiations had made “decisive steps forward” The EU’s Chief Negotiator, Michel Barnier, said that Theresa May’s Florence speech helped to “unblock talks” between the EU and UK Labour leader Jeremy Corbyn said that a Brexit transition period should go on for “as long as necessary” Beef farmers in Northern Ireland have called for a five-year Brexit transition period to minimise disruption to the industry A Politco study found that doctors and nurses move countries the most of any highly-regulated profession in the EU, typically moving from East to West where medical spending is higher per head French President Emanuel Macron put forward a plan for closer euro area integration, including the convergence of corporate tax rates Wolfgang Schäuble, a staunch advocate of austerity and closer euro area integration is to step down as Germany’s Finance Minister And finally… City officials in Lisbon, Portugal, have spent €12,000 to restore a two-storey “luxury” birdhouse replete with fresh water, gourmet bird food and a wood-panelled interior, as part of a programme to manage the city’s pigeon population more humanely. Birds are lured in to the luxurious nests, and when they lay eggs caretakers sneak in to replace them with realistic-looking fake ones – Coup d’état.