Weekly economic briefing: The TTP is dead…long live the CPTPP

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.

The TPP is dead…long live the CPTPP

After backing out of the Trans-Pacific Partnership trade agreement in January 2017, the United States still looks no closer to re-joining the deal any time soon. President Trump re-iterated last Friday, at a joint news conference with Prime Minister Malcolm Turnbull, that “the TPP was a very bad deal for the United States. It would have cost us a tremendous amount of jobs.” And he said the US would only consider re-joining if a “much better deal” for Washington was on the table.

The original TPP, concluded in late 2015, included 12 countries from North and Central America, Asia and the Pacific, with a combined 40% of world GDP. It sought to break-down barriers to trade and investment, establish rules for resolving trade disputes, and protect intellectual property. But when the US withdrew from the agreement shortly after President Trump came to office, the rest of the region still forged ahead. In January 2018, the remaining 11 member countries of the original TPP finalised the Comprehensive and Progressive Agreement for Trans-Pacific Partnership – the CPTPP – and are due to formalise things at a ceremony in Chile on 8 March next week.

Even without the US, the CPTPP remains meaningful and, once ratified, will cover economies representing around 13.5% of world GDP. It is essentially the same agreement as the original TPP, although 20 provisions have either been suspended or changed, most of which were included at the US’s behest, such as around intellectual property rights for its pharmaceutical industry. As with other traditional trade pacts, it aims to establish more seamless trade flows of goods and services across its member countries.

CPTPP members accounted for nearly a quarter of Australia’s exports of goods and services in 2016-17 (down from about 30% of exports if the US was included). In fact, six of the remaining CPTPP members – but chiefly Japan – were among the 20 largest recipients of Australian exports. And it’s a similar story for our imports. In 2016-17, imports from CPTPP member countries totalled about one-fifth of Australia’s total imports.

Chart 1: Australian trade by region, percentage of 2016-17 total

Source: Department of Foreign Affairs and Trade

These are significant numbers. And given CPTPP will eliminate more than 98% of tariffs in the free trade area, Australian exporters of goods will gain from cost reductions, as well as new access for our exports (and mainly agricultural products) into member markets.

Australian exporters of services will also benefit. Some highlights include reforms to the professional services sector (which will see some services be legally guaranteed and enforceable across member countries), and guaranteed preferential temporary entry arrangements for Australian businesses and people.

For Australian firms investing overseas, the CPTPP will deliver a more liberalised and predictable regime for the regulation of foreign investment, including in key sectors such as mining and resources. For example, Australian investments into Canada and Mexico (under $CAD1.5 billion, and $US1 billion respectively) will not be screened.

For the TPP member countries as a whole, the loss of the US weakened the benefit of the regional trade deal significantly. But for Australia, does the US exit make a big difference?

The Peterson Institute for International Economics, a US think tank, estimated Australia’s participation in the original TPP would have boosted our GDP by 0.6% ($US15 billion) by 2030. Under the revised agreement, the same group projects Australia’s GDP to increase by 0.5% ($US12 billion) by 2030. That’s not a big difference – in large part because Australia and the US already have a bilateral free trade agreement (the AUSFTA) which has been in effect since 2005.

One feature common to both the TPP and CPTPP is better access to Japan’s market for agricultural goods, with reductions in Japan’s beef tariffs, access for dairy, rice and sugar products and removal of all tariffs on sheep meat, cotton, wool, seafood, horticulture and wine. Many of these gains were locked in for Australian exporters anyway via the Australia-Japan FTA, although in some cases the CPTPP will change the timing. With the US out of the trade deal, Australia also keeps a competitive advantage against it in the large Japanese market.

But these subtleties aside, better integrated global trade – including the United States and other major economies – is good for Australia. Most of the past decade since the Global Financial Crisis has been marked by sluggish world trade and slow global growth. These two things – global trade and global growth – are related. Right now, both trade and growth are picking up, and that’s supporting the outlook for the Australian economy.


For more information on the Australian brief, please contact co-authors David Rumbens and An Tran.


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/

What’s the value of a degree?

  • Economists don’t agree about much, but there is a strong consensus that education is a powerful enabler of growth and living standards. In the last century, the number of years people spend in education has risen inexorably. Today better education and training are offering the answer to challenges as diverse as mass automation, low productivity and lack of social mobility.
  • Since the Second World War, university enrolments have expanded throughout the Western world. In 1950, just 3.4% of 17-30-year-olds went to university in the UK. By the year 2000, the proportion had risen to 25%. Today close to half of all young people attend university in the UK.
  • The same holds true across most of the developed world. Policymakers around the world tend to see rising undergraduate numbers as a key driver of opportunity and incomes.
  • The standard benchmark for valuing degrees comes from comparing the lifetime earnings of graduates with non-graduates. In the UK, the ‘graduate premium’ over a career, for those from the Russell Group of leading universities, stands at £177,000. Graduates of newer UK universities tend to command significantly lower premia; one estimate suggests that for all UK universities the graduate premium is around £100,000.
  • Harvard academics Lawrence Katz and Claudia Goldin have studied changes in the US graduate premium over the second half of the last century. Their research shows that the premium rose sharply through the 1980s and 1990s, increasing the attraction of a university education. But between 2010 and 2015 the premium flatlined. This coincided with a period of weak wage growth and escalating student debt and led some to question the wisdom of continuing to expand university education.
  • The overall number for the graduate premium gives a pretty poor idea of the likely value of any particular degree. The premium is an average which conceals wide differences in the salaries earned by graduates of different subjects and from different universities.
  • Research by the Institute for Fiscal Studies shows that students with degrees in medicine, dentistry, economics and mathematics tend to command the highest salaries five years after graduation. Salaries for graduates in arts and design, agriculture and psychology are at the opposite end of the scale.
  • Where you graduate from matters. In the UK graduates of the London School of Economics, Oxford and Cambridge command the highest salaries five years after graduation.
  • Yet there is not a simple Russell Group vs the rest divide. Thus, 2008-09 graduates in nursing from Liverpool and education from Manchester, both Russell Group institutions, commanded the lowest median salaries for their subject, of any UK universities five years after graduation. Conversely, graduates in architecture and planning from Anglia Ruskin and creative arts and design from Bournemouth, two non-Russell Group universities, commanded the highest salaries in their field.
  • The headline figure for the graduate premium is somewhat deceptive in another respect. The calculation excludes those who drop out of university, people who forgo earnings and accumulate debt but do not secure a degree. With 7% of people starting a full-time degree in the UK in 2014/15 dropping out after their first year, this is a material omission.
  • Finally, the surge in the supply of graduates and the rise in the number of graduates taking non-graduate jobs suggest that the graduate premium could narrow in future. The Office of National Statistics reports that just under 50% of recent UK graduates now do jobs which are “non-graduate” in nature – defined as involving tasks that do not normally require knowledge and skills developed through higher education to be performed competently.
  • A report from the Intergenerational Foundation think tank has observed, “As more people become graduates, is it any surprise that previously low-to-median paid jobs now demand graduate-level qualifications? Not on any required intellectual level, but just because graduates are available…Job descriptions for a police constable, nurse, market researcher, advertising salesman or sales support worker are now not only specifying a degree, but in many cases also demanding an upper second-class degree” (August 2016).
  • Yet the UK also suffers from skills shortages. The Government’s Shortage Occupation List covers a range of jobs – particularly in science, engineering, design, IT, software, medicine, nursing, teaching and catering. At least in recent years the growth of the graduate population has exceeded demand without fully meeting the requirements of the economy.
  • There is a wider question too. A university degree is widely seen as offering a signal to an employer about suitability of an individual for a job. Part of this reflects ability, but non-graduates with the same aptitude are disadvantaged by virtue of not having the signalling power and credibility that comes with a degree. A full measure of the return to university education would need to take account of such distributional effects.
  • In the UK rising fees, higher levels of student debt and stagnating incomes have prompted new thinking about higher education.
  • Baroness Wolf, a leading expert in education at King’s College London says that “for many occupations, university is neither a good nor a cost-effective preparation”. She believes the UK should focus more vocational training. Baroness Wolf contrasts the experience of British polytechnics with their German counterparts – the Fachhochschulen – set up in the late sixties. While many polytechnics have become universities, and some abolished, the German institutions have thrived, producing skilled technicians.
  • Last week Theresa May announced a review of tuition fees and university funding. Criticising the spiralling costs of higher education, the Prime Minister warned that the UK must get away from “an outdated attitude” that university is the only desirable route to a good career.
  • Improving education is one of the surest routes to prosperity and social mobility. But it needs to be right for the individual and the economy. Government and students are increasingly focused on the cost of, and value from, degrees. Alternatives to university, such as vocational courses, apprenticeships and technical qualifications, are likely to move centre stage.


The FTSE 100 ended the week down 0.7%, at 7,244.


International economic briefing by Ian Stewart

Economics and business

  • UK productivity grew at the fastest pace since before the financial crisis in the second half of 2017
  • UK unemployment unexpectedly rose in the final quarter of 2017
  • UK government borrowing for the fiscal year to date is at its lowest level since the financial crisisAndy Haldane, the Bank of England’s chief economist, said he will vote for higher interest rates if “there was a continued upward movement in price and wage pressures”
  • The ONS revised down its estimate for UK growth during 2017 to 1.7%, easing pressure on the Bank of England to raise interest rates at their next meeting
  • New gender pay reporting rules have shown that, on average, 84% of companies pay their male staff more than their female counterparts
  • The Resolution Foundation reported that UK millennials have seen a decline in most measures of living standards compared with the previous generation
  •  The OECD warned that rising government debt and interest rates pose a “significant challenge” to developed nations
  • German business sentiment fell more than expected in February in response to domestic political uncertainty and market volatility
  • US small-business confidence rose to a record high in 2018 Q1
  • The minutes from the US Fed’s latest meeting note that US growth is gaining momentum, indicating a faster pace of interest rate hikes
  • Claims for jobless claims in the US fell close to its lowest levels since the early 1970s last week
  • The President of the New York Fed called the “speculative mania around cryptocurrencies” a risk to financial markets and their valuations “dangerous”
  • US celebrity, Kylie Jenner, triggered a £1bn drop in Snapchat’s market value after tweeting a complaint about the controversial redesign of the app
  • US officials blocked a Chinese bid for an American electronics business, signalling continued scepticism towards Chinese investment deals
  • A UK government review into the taxation of technology companies, such as Facebook and Google, said taxing revenues as opposed to profits was “potentially the preferred route to go”
  • Research by RAND found that delaying the school day start to 8.30am would add $140bn to the US economy over 15 years by raising academic attainments
  • Over half of the UK’s KFC restaurants were shut last week due to a breakdown in a new supply contract with delivery network DHL

Brexit and European politics

  • In what could be a significant change of tack Labour’s Shadow Brexit Secretary, Keir Starmer, said the UK would leave the customs union but would negotiate a treaty to “do the work of the customs union”.
  • Jeremy Corbyn will confirm Labour’s position on the Customs Union in a speech on Monday
  • Net migration of EU citizens to the UK fell by 75,000 in the year to September, its lowest level in almost five years
  • Ahead of Theresa May’s speech to the EU27 this week, setting out the UK’s Brexit vision, the cabinet committee has endorsed a proposal for “managed divergence” from the EU
  • Donald Tusk, President of the European Council, labelled the UK’s Brexit plan for “managed divergence” as “pure illusion”
  • Some EU member states called for a smaller EU budget post-Brexit, to prevent higher contributions after the UK’s departure, with Sweden’s finance minister saying, “there is no hole to fill”
  • As a sign of confidence in post-Brexit Britain, Bank of America extended the lease on its City headquarters by a decade
  • Germany’s far right party, the AfD, called for Berlin to “go easy” on the UK and backed an EEA-style Brexit deal in its first parliamentary debate
  • Ahead of next month’s Italian elections the European Commission president warned that it was preparing for the “worst case scenario” of a “no operational” government in Italy

And finally…

Britons eat 50% more food than they admit to, with men eating 3,119 calories a day, not the 2,065 they own up to and women consuming 2,393 instead of 1,570, according to the first official use of a biological test which measures calorie intake – telling porkies

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