For the first time in years, we are experiencing a global economic expansion that spans developed and developing economies alike, so much so that the IMF recently upgraded its global growth forecast for 2018 and 2019 to 3.9 per cent.
The UK economy performed better than expected at the end of 2017, but it is still expanding at its slowest rate since 2012 and lags all other G7 economies. Brexit grabs the lion’s share of headlines, but it is far from the only factor affecting growth; poor productivity and an ageing population are also taking their toll on long-term economic performance.
The UK is not alone in facing this challenge; indeed, you might say that the entire G7 group of advanced economies (Canada, France, Germany, Italy, Japan, the UK and the US) is afflicted with this malaise. Being a member of the G7, it seems, is no longer an automatic passport to growth.
Could the Emerging Seven or ‘E7’ hold the answer to some of the UK- and the wider G7’s problems?
We crunched the data to come up with a target list of seven fast-growing emerging markets with which Britain and its neighbours need to trade more if they’re to optimise their growth trajectories.
“How well does the G7 trade with the E7 right now? In a word, poorly”
The billion-dollar opportunity
Bangladesh, Indonesia, Nigeria, Pakistan, Vietnam, China and India collectively represent more than 50 per cent of the world’s population and 20 per cent of global GDP. Their young, growing populations and burgeoning middle classes mean that last figure will grow inexorably in the decades to come.
So how well does the G7 trade with the E7 right now? In a word, poorly. We analysed 49 trade links between all these countries and our data shows a huge gap between what the G7 is currently achieving and what it might accomplish. Collectively, we found that G7 countries could increase annual exports by USD100 billion, with the UK winning the biggest chunk of this export pie.
This is because we are currently exporting so little to E7 countries right now. In fact, if you measure the gap between what UK actually sells to what it potentially could export, we rank last in the G7. Closing this export gap could add almost USD15 billion a year to the UK economy, a significant boost at a time when domestic demand is blunted by lower real incomes and higher debt payments.
“For Britain, and the wider G7, the E7 nations represent a crucial highway for growth and prosperity”
Arguably, the UK has most to gain out of the European G7 nations as Brexit frees its hand to negotiate trade deals with many of these E7 countries. A weaker pound can only help. Europe will remain the UK’s most important trading partner, given its proximity and its vast market of consumers and businesses, but that doesn’t mean it shouldn’t also explore the considerable, and underutilised, opportunities far beyond the Continent.
Take Vietnam for instance. It’s forecast to grow more than 6 per cent per annum between 2018 and 2020. Right now, the UK exports a measly USD600 million worth of goods and services to Vietnam, making this the worst performing trade link of the 49 we analysed. We predict the number should be nearer USD3 billion, a five-fold increase.
Look to China
The UK would also benefit significantly from opportunities with China, where the gap between what we currently export and what we might achieve is worth USD4.6 billion. Yet, China is transforming its economy to rely less on heavy industry and more on consumption and services; that means fewer imports from other countries including the UK, an added impetus to close the export gap with other E7 nations including India, where the gap is worth USD3.6 billion a year.
The UK’s relationship with its neighbours is destined to change in the coming years, promising economic and geopolitical upheaval. Rising protectionism in the US also threatens to tear up long-established trade relationships with Europe and Asia. Now is the time to explore new alliances and opportunities in the emerging world. For Britain, and for the wider G7, the E7 group of nations represents a crucial highway for growth and prosperity.