europe after the brexit...2016/11/08 · •brexit: voters request a more attractive outlook for eu...

EUROPE AFTER THE BREXIT OUTLOOK AND OPPORTUNITIES FOR FOREIGN INVESTORS

Dr. Martin SCHULZ Senior Research Fellow

Fujitsu Research Institute

Copyright 2016 FUJITSU RESEARCH INSTITUTE

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• Japanese investment in Europe • Strong focus on EU integration

• Europe after Brexit - Four crises and only bad news? • Structural reforms and a new policy framework

• Outlook and Opportunities • EU Potentials?

EUROPE AFTER THE BREXIT


3

• Japanese investment in Europe • Strong focus on EU integration



0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Source: Data from CEIC (2016).

Japan’s incomes from Europe and Asia are catching up with US

Japan’s Regional Income Balance (Billion Yen)

4

US

Europe

Asia

JAPAN’S 0VERSEAS INCOMES ON TRACK

Copyright 2016 FUJITSU RESEARCH INSTITUTE Note: Current Account, Primary Income, Net Balance.

0.5

1.5

2.5

3.5

4.5

5.5

6.5199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

Germany

US

Source: Data from IMF-WEO; OECD.

“New Normal” Potential Growth Rates 1990-2030 (%)

5

Note: 10-year moving averages of IMF GDP growth rates at constant prices. 2018-30 OECD Forecast.

Japan

2030 OECD Estimate/Forecast

New Normal

New Normal

2.4%

1.4%

Demography Gap

… WHILE POTENTIALS REMAIN LOW?


EU

Emerging &

Developing C.

ASEAN5 Middle Income

Crisi

s

Crisi

s

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Japan in UK Japan in Germany Japan in Poland

Customer Contact Centre

Recycling

Shared Services Centre

Extraction

ICT

Techn. Support Centre

Education & Training

Maintenance & Servicing

R&D

Business Services

Design, Development

Retail

Headquarters

Logistics, Distribution

Sales, Marketing

Manufacturing

6 Source: Data FT FDI Database (2012).

Japan FDI in UK, Germany and Poland (Cases 2003-2009)

販売, HQ, R&D

サービス

製造, 販売, 物流

Japanese companies took advantage of regional potentials and market integration

JAPAN-EU INVESTMENT: INTEGRATION FOCUS

6 Copyright 2016 FUJITSU RESEARCH INSTITUTE

POST-CRISIS FOCUS ON LONDON

Japanese M&A Cases in the UK and Germany (2011-2016)

U.K. No. Germany No. Commercial Services 13 Chemicals 11

Internet 10 Electronics 11

Food 9 Computers 9

Holding Companies 9 Machinery-Diversified 9

Computers 7 Auto Parts & Equip. 8

Alt. Energy 7 Commercial Services 5

Advertising 6 Misc. Mfg 4

Software 6 Pharmaceuticals 4

Entertainment 4 Biotechnology 3

Misc. Mfg 4 Hand/Machine Tools 3

Total 139 Total 109

Source: Bloomberg as of 2016.05 7

Japanese companies took advantage of regional potentials and market integration

UK

Services

HQs, R&D

Germany

Mfg, Sales

R&D


8 Source: Data from UK Office for National Statistics; CEIC.

UK INVESTMENT LEAD TO TECHNOLOGY BOOM


0

500

1,000

1,500

2,000

2,500

Computer & Related Activities

Motor Vehicles & Parts

Post & Telecommunications

Machinery & Equipment

Electrical Machinery &Apparatus

Office Machinery & Computers

Investments in R&D in the UK (GBP Mn)

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• Europe after Brexit - Four crises and only bad news? • Structural reforms and a new policy framework



10

• Brexit: Voters request a more attractive outlook for EU integration

• Eurozone Reform: Difficult push for structural reforms

• Ukraine Crisis: EU cannot intervene or stabilize partner countries

• Middle East Crisis: Instability requires new partnerships with Iran, Arabia, Turkey

Brexit EU Market Integration EU Governance Reform

Ukraine Russia Relations Cold War Security Risks

Eurozone Reform New Financial Policy Structural Reform Middle East War

Refugee Crisis Iran-Arabia-Turkey Strategies

EUROPE – 4 CRISES


Source Map: https://www.espon.eu/main/Menu_Publications/Menu_MapsOfTheMonth/ Source Photos: http://www.marineinsight.com/wp-content/uploads/2015/04/migrants.jpg; http://www.europarl.europa.eu/news/en/top-stories/20150831TST91035/Migration-a-common-challenge

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IMMIGRANTS TEST GLOBALIZATION

13 Mill. Refugees Syria Crisis: 2.2 Mill.

2015: 5411 Migrant Deaths

Copyright 2016 FUJITSU RESEARCH INSTITUTE 11

http://www.marineinsight.com/wp-content/uploads/2015/04/migrants.jpg



Source: EU Ameco Database (2016)

Note: 2000 =100, based on compensation in euros. 12

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170

201520142013201220112010200920082007200620052004200320022001200050

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170

2015201420132012201120102009200820072006200520042003200220012000

Services

Manufacturing

Japan

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70

90

110

130

150

170

2015201420132012201120102009200820072006200520042003200220012000

Services

Manufacturing

Industry

50

70

90

110

130

150

170

2015201420132012201120102009200820072006200520042003200220012000

Services

Manufacturing

Services

Manufacturing

Germany UK

US

Labor Compensation by Sector (2000=100)

RESTRUCTURING CREATES LOSERS


US - Trump: “Make America Great Again!”

UK - UKIP: “Controlling our own borders, making our own laws, running our own country!”

Source: Bloomberg

Source: www.donaldtrump.com

Sources: http://ichef.bbci.co.uk/news/660/media/images/79755000/jpg/_79755138_5489a5d7-c4a8-4f59-bb09-8420fec1eeb7.jpg; https://files.opencanada.org/images/RTX2OYD0.6969629d.fill-940x627.jpga; http://www.bilaterals.org/IMG/rubon205.jpg; http://www.globaalmarshallplan.org/en/stop-ttip-eci-campaign-explained

Canada-EU FTA (CETA) a litmus test Japan-EU FTA


GROWING TRADE OPPOSITION

http://ichef.bbci.co.uk/news/660/media/images/79755000/jpg/_79755138_5489a5d7-c4a8-4f59-bb09-8420fec1eeb7.jpg









http://www.bilaterals.org/IMG/rubon205.jpg

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MIDDLE EAST LONG-TERM STRATEGIES

ISIS

Source: Map: http://lecourrierdumaghrebetdelorient.info/arab-world-maps/arab-world-maps-a-proxy-war-in-the-middle-east/#prettyPhoto

Shi’a Muslims

Sunni Muslims

Engaging Iran

Turkey Immigration Support

Egypt Stabilization

Arabia Stability


EU: SUPRA-NATIONAL TO INTER-GOVERNMENT

EU Commission

Council (Heads of State)

Central Bank

EuroGroup (Finance Ministers)

President

President

President

President

EU Governance New EU Governance

Brexit Russia Immigr. Euro

Strong inter-government EU Council enforces more executive powers


Supra-National Integration

Inter-Governmental Reform

Parliament

Council of Ministers

External Action Service

Foreign Ministries

Presidency

Troika

Foreign Affairs Council (Foreign Affair Ministers)

Stability Mech.

Director

President High Representative

supervision appointment

Legislation & budget

co-decision

arbitration supervision

FROM TRADE REFORM TO TECHNOLOGY

R&D, ICT, Services

Governance, Regions

Globalization, EPA/FTA

Koizumi (2002)

“Agenda 2010” (2003)

Labor Market

Abenomics (2020?)

“Debt Brake” (2009)

Government Finance

No “Schengen”

(1995)

Immigration

Abenomics (2015)

Single Market (1993)

Agriculture

University (2004)

“Bologna” (1999)

Education

Security Laws (2015)

Collective Sec. (1994,1999)

Security Grid

(2016) Renewable

(2000, 2011)

Energy

TPP (2018?)

Single Market (1993)

CETA (2016) Japan FTA (2017)(?)

Trade

Abenomics (2012)

Euro (2000)

Exchange Rate

Koizumi (2003)

Banking Union (2015)

Finance

Smart Japan (2014)

Industrie 4.0 (2012)

ICT

New Focus: Technology & Investment?

16

Reform Policy Comparison: Japan – Germany


Industry Platforms Smart Factories

Mfg. 20%

INDUSTRIAL POLICY: INDUSTRY 4.0

7% Consumer 29%

13%

Consumer Platforms

Global User Access, Markets, Standards, New Business Models

Smart Automob.

1.5%

Smart Machines

2.2% Smart

IT 1.2%

Smart Agricult.

1.2%

Smart Chemical

2.2%

7% 7%

Retail

Transport

Healthcare

Government

4% Utilities

Internet of Services Partner Ecosystems

Internet of Things Device Integration

IoT Market Shares

Source: Data from IDC, Fraunhofer (2014)

Reform Opportunities

I40 Productivity Growth

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2010 2018

IoT Market “Revolution” +20% YoY (Market Size)

1970 2030

I40 Market “Evolution” +1.5% YoY (Value Added)

Source: Graphs: Acatech, Siemens.

Copyright 2016 FUJITSU RESEARCH

INSTITUTE

18

• Outlook and Opportunities • EU Potentials?



UK government estimates of Brexit costs:

-6.2% lower GDP in 2030 with non-favorable EU trade terms

-3.8% lower GDP when joining the general European Economic Area (EEA) FTA

Swiss case depends on extreme globalization and swift reforms

High immigration, currency peg to euro, industry restructuring, deflation

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-4

-2

0

2

4

6

8

10

Switzerland

Germany

UK

Japan

Note: Based on purchasing power parities (PPP) calculated as “international” dollars. Source: IMF-WEO Database (2015).

Real GDP per Capita Difference Relative to the EU (Difference – 1991 Difference)

UK BREXIT POTENTIAL?


$1000

50

100

150

200

250

300

350

400

2003 2005 2007 2009 2011 2013 2015

UK IT Stocks

EU IT Stocks

UK CHALLENGE: SERVICE CENTER AT RISK?

Note: EU indices exclude UK stocks.

MSCI Stock Market Indices for the UK and EU (ex UK) (2003=100)

Source: Data from Bloomberg.

UK Stocks

EU Stocks

UK Stocks


70

90

110

130

150

20172015201320112009200720052003

European Union Germany Spain United Kingdom Switzerland United States Japan

Source: Data from AMECO Database (2016).

Real Disposable Income (PPP)

EU REGIONAL POTENTIALS

Disperse opportunities: Wide variety of real income, profit and productivity growth

70

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140

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20172015201320112009200720052003

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20172015201320112009200720052003

90

95

100

105

110

115

20172015201320112009200720052003

Net Operating Surplus Labor Productivity

Swiss

Swiss

Swiss

US

US

US

EU

EU

EU UK

Spain

Spain

Germany

Germany

Germany


-100

0

100

200

300

400

500

600

700

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Source: Data from Bloomberg (2016.05.16).

Main Stock Indices (JPY Base)

EU MID-CAP OUT-PERFORMANCE

Significant opportunities: EU mid-size companies gain from market integration

Mid-Caps (JPY Base)

Swiss

Germany

Austria

UK Spain

Italy

US Japan

-100

0

100

200

300

400

500

600

700

20

03

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04

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05

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06

20

07

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08

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20

10

20

11

20

12

20

13

20

14

20

15

20

16

US

Japan

Germany

Swiss

UK

EU

Italy


Source: Data from IMD (2015, …). Copyright 2016 FUJITSU RESEARCH INSTITUTE

IMD Competitiveness: Macro Economy

EU POTENTIAL: COMPETITIVENESS

EU integration pays off for Germany

0

5

10

15

20

25

30

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

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04

20

05

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06

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07

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08

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09

20

10

20

11

20

12

20

13

20

14

20

15

Japan

Germany

US

23

Source: Data from IMD (2015, …).

IMD Competitiveness Macro Economy 1999 2015

-60-50-40-30-20-10

0Economy

Trade

InvestmentEmployment

Prices

-60-50-40-30-20-10

0Economy

Trade

InvestmentEmployment

Prices

Challenge: Price Competitiveness US strong overall economy Germany high prices, low employment

Change: Market Reform Prices down, but USD challenges trade Price competitiveness boosts employment

USA

EU POTENTIAL: MACRO ECONOMY

Significant macro framework improvements through EU integration

Germany

JP


-50

-40

-30

-20

-10

0Productivity

Attitudes

FinanceManagement

Labor Market

-50

-40

-30

-20

-10

0Productivity

Attitudes

FinanceManagement

Labor Market

IMD Competitiveness Business Efficiency 1999 2015

Challenge: Labor Market US strong efficiency except labor Germany stagnant labor market, low

productivity

Change: Governance Reform Cost cutting depresses sentiment Labor reform boosts productivity

USA

EU POTENTIAL: BUSINESS EFFICIENCY


Business efficiency boost during EU integration in Germany

Germany

JP


-70-60-50-40-30-20-10

0Finance

Fiscal

InstitutionsLegislation

Society

-70-60-50-40-30-20-10

0Finance

Fiscal

InstitutionsLegislation

Society

IMD Competitiveness Government Efficiency 1999 2015

Challenge: “Competition with Asia” US strong framework German underperformance

Change: Institutions & Finance Financial crisis hits social framework Institutional efficiency, social flexibility

EU POTENTIAL: GOVERNMENT EFFICIENCY


Financial crisis and governance reforms created instability

USA

Germany

JP


LONG INTER-GOVERNMENT TRADITION


Europe’s first “constitution” of 1356 (Golden Bull) regulated inter-government elections of the Holy Roman Emperor for almost 500 years.

Charles IV established flexible European inter-government policies

Charles IV: Heir of Luxemburg, raised in Paris, ruling from Bohemia, prepared Europe for the modern age

出所: www.Welt.de; www.begleitprogramm-karl-iv.de; www.mystika.cz

http://www.begleitprogramm-karl-iv.de/





28

• Brexit: Negotiation “noise” and uncertainty • “Hard Brexit” options and strong trade integration lead to a new “special

relationship” with full market access but limits for social security etc. • UK policy initially expansionary, but needs to turn restrictive from 2018 to

stabilize currency and increase competitiveness

• EU Reform: EU of “many speeds” emerging • EU Council has become the de-facto executive institution, enforcing national

reforms from banking to security • National (reform) policies lead to different national levels of integration with

a stronger focus on trade, industrial policy, competition

• Foreign Investors: Focus on integration opportunities • EU integration continues with more competitive diversity and restructuring

opportunities • Manufacturing opportunities in the UK, service improvement in Germany,

restructuring potentials in Spain, …



europe after the brexit...2016/11/08 · •brexit: voters request a more attractive outlook for eu...

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