European Best Performers in Times of Crisis

This analysis presents highlights from the full report, available in PDF here.

In the context of the current financial and economic crisis, The European House – Ambrosetti decided to analyse the economic performance of European countries in the last 10 years in order to comprehend the most resilient countries during the crisis (2008-2012)

The study outlines common features, strategies and political choices that have contributed to achieve positive performances in order to learn from the best cases.

This document captures the trends of the last 10 years with a focus on the financial and economic crisis, outlining possible reasons that explain Countries performances.

Key Findings

With the exception of Greece, Italy and Portugal, all countries reported positive performances in terms of GDP growth between 2002 and 2012; only 7 countries (Austria, Belgium, France, Germany, Poland, Slovakia and Sweden) maintained the same trend during the crisis period (2008-2012).

Moreover, the worst performers in the 2002-2012 decade were also the least resilient over the crisis period.

During the decade, 7 countries had a GDP Compound Annual Growth Rate (CAGR) in line or higher than the US; only 3 countries, Poland, Slovakia and Sweden, outperformed the US during the crisis.

The countries with the best performances in two periods (with a GDP CAGR higher than the sample’s average) were Austria, Poland, Slovakia and Sweden.

Figure 1: GDP

Source: The European House – Ambrosetti re-elaboration on OECD data, 2013

Entry into the EU or the Eurozone* (EZ) appears to produce positive effects on new member states. While Austria’s performance has improved following entry into the Eurozone, Poland and Slovakia have significantly improved their performance in conjunction with entry into the European Union.

Figure 2: Entry Into the Eurozone

Source: IMF, IMF projections

Poland (9.88 out of 10) and Slovakia (8.34 out of 10) show the highest scores under the GDP Index* which combines the country’s performance in the short- and longterm. Sweden and Austria followed closely.

Portugal, Italy and Greece report the lowest scores. Spain and Ireland – both included in the PIIGS group along with Greece, Italy and Portugal – achieved better scores due to stronger GDP growth during the 2002-2012 decade.

Figure 3: The GDP Index

Source: OECD

Employment

Among EU best performers Austria and Sweden showed higher than average employment rates. During the decade (2002-2012), Poland and Slovakia presented a lower than average employment rate. However, Poland’s employment rate is rapidly improving and the gap with the other countries is being reduced.

Between 2002 and 2012 only 8 countries have shown a reduction in the employment rate. During the crisis only Germany, Poland, Hungary and Austria have shown an increase of this index.

Among the best performers in terms of GDP Index, only Poland and Austria have shown a positive variation of the employment rate also during the crisis.

Considering new job creation per thousand inhabitants the best performing countries in 2012 were Germany, Austria and Belgium.

New job creation and GDP growth have shown a positive relation. Greece, Ireland, Portugal and Spain report negative performances under all accounts; Poland, Austria and Sweden are the best performers along with Belgium and Germany.

Figure 4: GDP and Employment

Source: The European House – Ambrosetti re-elaboration on Eurostat and OECD data, 2013

In all countries during the 2001-2011 period, the labour cost has increased. Germany and Sweden registered the lowest increase. Sweden and Poland have registered an increase of labour productivity and a slight increase in labour cost. Slovakia has registered the biggest increase in labour productivity: it should be noted that the initial level of this indicator was particularly low.

Government Debt

The countries with the highest government debt growth rate during the 2002-2012 decade are also the ones with a government debt-to-GDP ratio lower than 60% (average ratio of the observed period).

Despite having one of the highest government debt growth rates, Sweden and Slovakia have maintained a moderate government debt-to-GDP ratio. During the decade, Italy and Greece have reported shrinking GDPs and the highest government debt-to-GDP ratios (more than 100%).

Relating the GDP Index to the government debt-to-GDP ratio it emerges that countries with higher GDP growth rates (Austria, Poland, Slovakia, Sweden) also have a government debt-to-GDP ratio below 80%.

Figure 5: Government Debt

Source: The European House – Ambrosetti re-elaboration on IMF data, 2013 

External Openness

The performance of EU countries is quite diversified in terms of exports. 12 countries out of 20 reported in 2012 an export-to-GDP ratio lower than 60%. Ireland leads the ranking with a ratio set at 106.6%, followed by Hungary, Estonia and Slovakia.

Poland has significantly improved its performance, reporting a positive variation of 8% in the 2001-2012 period. A similar trend is observed in Austria. Germany is the main trade partner of Austria and Poland (31% and 25% of total exports in 2012 towards Germany).

On the other hand, Sweden has presented an export-to-GDP ratio of 40% and an increase in exports that is slightly higher than 3%.

Poland and Slovakia have also reported an impressive performance in terms of external openness:* the results achieved are by far superior to the EU average. Austria has been in line with the EU average.

Figure 6: External Openness

Source: The European House – Ambrosetti re-elaboration on World Bank data, 2013 

*External Openness is defined as (Export + Import )/GDP. It serves as a proxy for measuring the integration of the economy into the global economy

Attractiveness

In 2011, Belgium attracted the lion’s share of Foreign Direct Investment (FDI) flows (€103 billion); the United Kingdom, Germany and France followed at some distance.

Belgium (17.7%), Slovakia (17.1%), Poland (17.0%) and Estonia (16.5%) registered the highest growth rates. Austria and Sweden also report an annual growth rate higher than 12%.

In terms of stock of FDIs on GDP Belgium and Ireland have registered the best performances. The largest European economies – Germany, United Kingdom, France, Italy and Spain – reported a value of this indicator lower than 55%.

Manufacturing

In late 2012 the European Commission launched a strategy aimed at bringing the value added of manufacturing to 20% of GDP in the 27 member countries by 2020 (today this figure is equal to 15.6%).

This means that manufacturing value added should reach 2.550 billion euros, starting from a level of 1.758 billion in 2011: this is approximately the value added created by companies in the manufacturing sector of Germany and Italy.

To reach this objective, assuming that productivity levels remain constant over the next 8 years, the volume of those employed in manufacturing should rise from 32.3 to 46.8 million. (Valerio De Molli (2013), “The 20% rule in manufacturing”, Il Sole 24 Ore)

The manufacturing sector of the 4 best-performing economies represents a high portion of GDP (from 16% in Sweden to 24% in Slovakia).

During the 2000-2010 period, the weight of manufacturing decreased in all countries. Poland showed the smallest reduction while Ireland suffered the greatest decrease.

Between 2001 and 2011, employment in the manufacturing sector decreased in all countries except in Poland where the annual growth rate has been 0.6%.

Figure 7: Manufacturing Trends

Source: The European House – Ambrosetti, Observatory on Europe and Eurostat data, 2013

Innovation/Entrepreneurship

In 2012, Finland, Sweden and Denmark registered an R&D expenditure on GDP higher than 3%; the sample average instead is equal to 2%.

The ranking could be split in two: in the upper part are central and northern countries; in the lower southern and eastern countries.

In 2012, Sweden was the best performer country for venture capital investments on GDP (0.64%) and it also reported a low level of cost to start a business (0.5%).

In 2012, Poland reported a total tax rate lower than the average of analysed countries (43.8% vs. 46.7%).

EU Best Performers – Key Common Issues

  • The good economic performances of the best performing countries (Austria, Poland, Slovakia and Sweden) have been achieved in different ways.
  • Austria and Sweden perform very well in terms of employment rate: from 2002 their employment rate is higher than average.
  • The 4 best performing economies also present a government debt-to-GDP ratio lower than 80%.
  • Poland and Slovakia show a high level of external openness; Slovakia’s exports account for almost 90% of its GDP.
  • Germany is the main trade partner of Austria, Poland and Slovakia: these countries have benefited from the stability of the German economy.
  • The manufacturing sector of Austria, Poland and Slovakia accounts for a high portion of GDP and employment (≈ 20%).
  • Austria and Sweden have focused their efforts on labour markets and innovation.

Poland – Highlights

Poland is definitely the most interesting case: indeed the country has been reporting economic growth for over 20 years now.

The success may be attributed to:

  • rigorous monetary policy aimed at containing inflation, which reached a yearly rate of 649% in the ’80s; such discipline allowed it to avoid credit bubbles;
  • taxation – even though not particularly low – it has never gone out of control; thus, a fiscal bubble has been prevented;
  • manufacturing which represented one-fifth of GDP by the mid-1990s;
  • external openness and reduction of external debt.
  • The financial sector is well developed and confidence has been increasing. Banks are assessed as more sound than in the past, although additional consolidation would be necessary.
  • Government efficiency and regulation remain the most critical aspects in the opinion of the corporate sector.
  • A significant upgrade of the transport infrastructure is required to boost competitiveness further. Although some progress was made in this area during the European Football Championship in 2012, further efforts are nevertheless required to better connect the various parts of the country.
  • Innovation is considered a key component for future growth in Poland and the country is utilising €10 billion in Structural Funds from the European Union to stimulate

Sweden – Highlights

The country has been placing significant emphasis on creating the conditions for innovation-led growth.

The Swedish government introduced tax reductions to tackle employment reduction: in fact, employment rate went from 74.2% in 2007 to 73.8% in 2012.

Efficiency and transparency of public institutions are particularly high and they constitute attractive factors of the Swedish economy.

Combined with a strong focus on education over the years and a forward-looking attitude towards technological change, Sweden has developed an advanced business culture and is one of the world’s leading innovators.

The country shows a stable macroeconomic environment, with a balanced budget and manageable public debt levels. These characteristics actively combine to make Sweden one of thethe world’s leading innovators.

The country shows a stable macroeconomic environment, with a balanced budget and manageable public debt levels. These characteristics actively combine to make Sweden one of the most productive and competitive economies in the world.

Slovakia – Highlights

Several years ago, the relatively young Slovak economy exhibited the fastest economic growth in Europe. However, this trend has gradually waned in international comparisons and economic growth has slowed.

The most significant competitive advantages of Slovakia are:

  • exports and external openness towards EU countries;
  • foreign investment stimulated by tax incentives;
  • manufacturing that produces a substantial proportion of GDP and employs a significant portion of the labour force.

Corruption, bureaucracy, restrictive labour regulations and insufficient infrastructure were identified as the most problematic business factors and the greatest long-standing hurdles in the Slovak business environment.

This document has been prepared for The European House – Ambrosetti Forum “Intelligence on the World, Europe, and Italy”, Villa d’Este – Cernobbio – September 6, 7 and 8, 2013.

2 Responses to "European Best Performers in Times of Crisis"

  1. wastewater1   September 24, 2013 at 2:39 am

    Unfortunately, this trend will not continue and instability will grip the Middle East and have ripple effects globally….