Article on Growth and Economic Comparative

European Union vs Commonwealth

Introduction

European Union vs Commonwealth – In light of the development around Brexit, the EU is still very important partner of United Kingdom. Though the trend is on the decline over time and has registered a steady fall of UK’s exports to EU from 54% to 46%[1] in only 6 years, this is now a complex game for EU where Brazil, China and 2/3rd of Commonwealth nations are not interested to negotiate trade representative with EU. However, US, Canada and India are very much in progress with their negotiation for trade representative with EU. EU has very less trade agreement with commonwealth nations which is at present around 33%. As per South East England MEP Daniel Hannan[2], the IMF countries within EU is expected to grow with an average rate of 2.7% in next five years while the commonwealth is expected to surge ahead at 7.3%. The impact of future growth prospect has also started creating its own influence in Brexit development.

European Union vs Commonwealth  – How UK looks at future growth aspect?

European Union vs Commonwealth

In the context of Brexit when UK withdraws from EU, UK should not compromise with EU and shall endeavour towards trade opportunities with Commonwealth, BRIC nation, NAFTA and other trading nations who are more aligned with its trading priorities. In such case, UK could seek aggressively futuristic longer-term trade with technological segments where EU has no agreement as yet. The countries in this segments are USA, Singapore and Japan[3]. It may be noted that one agreement with Korea took years for EU to materialise finally. The only one instance of favourable impact for having direct trade with US by removing trade barrier, may be considered as UK’s trade growth in the horizon of £4 to £10 billion[4]. This is difficult to ignore for the economist and politician. On the downside, of-late domestic risks in Europe have also increased. The unexpected re-lapse of Greece crisis could endanger entire investment decision reflecting low or negative economic growth. At the same time, if political challenges are not effectively dealt with at EU level, it could trigger major impediments of growth. In the longer-term, UK will have to look into the trading position with non-European nations such as Turkey, Mexico, Indonesia and Nigeria (the MINT

countries[5]). These nations are in position to provide greater opportunity with its encouraging projection of demographic for economic growth as they are touted as future economic giants.

European Union vs Commonwealth – Growth

When one looks at the growth potential, Commonwealth nations are growing more rapidly than ailing Eurozone. By the measure of World GDP share Commonwealth nations have overtaken Eurozone (as per 1973 definition) GDP by 2004. With the same measure, Commonwealth is slightly bigger that present Eurozone.  After 1973, the economic has been accelerated in Commonwealth zone as compared to Eurozone where the growth has been decelerating slowly from the average level of 3.6% in 70s to meagre 0.7% in recent past.

European Union vs Commonwealth  Chart: 1

European Union vs Commonwealth

[Source: Data compiled from World Economics, World Bank and data estimate of IMF suitably analysed]

For the above analysis, Eurozone is defined as full members of 2016 such as Germany, France, Spain, Italy, Austria, Netherlands, Ireland, Finland, Belgium, Portugal, Greece, Estonia, Slovak Republic, Slovenia, Latvia, Luxembourg, Malta and Cyprus. The EU as per 1973 definition, are with full members such as Germany, France, Italy, Netherlands, Belgium, Denmark, Ireland and Luxembourg (UK removed). The Commonwealth is defined as for both the charts are with all members excluding UK. Some of small nations have been omitted due to difficulty of sourcing GDP data, but the impact would be negligible. The members who have joined and left in the intervening period of since 1973 to date are also ignored which may not have more than 1% impact on total GDP.

European Union vs Commonwealth  Chart: 2

European Union vs Commonwealth

[Source: Data compiled from World Economics, World Bank and data estimate of IMF suitably analysed][6]

European Union vs Commonwealth Chart: 3 (As per 2016 definition)

European Union vs Commonwealth

[Source: Data compiled from World Economics, World Bank and data estimate of IMF suitably analysed]

 

European Union vs Commonwealth  Chart: 4 (As per 1973 definition)

European Union vs Commonwealth

[Source: Data compiled from World Economics, World Bank and data estimate of IMF suitably analysed]

As observed above, in both the charts there was significantly higher share for EU which is steadily going down. It has crossed in 2004 and now much lower than the Commonwealth nations. With the inclusion of new members, the effect had been off-set during period of 2004 to 2009 period. From the World GDP share point of view, the position of EU is becoming lesser significant day by day and the share of the Commonwealth nations are increasing steadily. As a continuation to this analysis it may be interesting to see the future outlook of growth data as in Chart: 5.

European Union vs Commonwealth  Chart: 5

European Union vs Commonwealth

[Source: European Economic Forecast, Winter 2016. Institutional Paper February,2016]

European Union vs Commonwealth  Chart: 6

European Union vs Commonwealth

[Source: Data compiled from World Economics, World Bank and data estimate of IMF suitably analysed]

In the present dynamic economic condition, it is chosen to look into 2 years’ future data. In the longer-term horizon, it has been seen that one of the major growth enabler is population, its age and growth rate. Thereby it is interesting to see that the growth in population is widening in future and getting wider till 2050 as shown in Chart: 6. The trend for Euro is not reversing even till 2050. This is where one has to see, how UK’s presence in the EU’s exiting framework will help. The economic indicator tends to suggest that UK can optimize its growth opportunity by deriving larger benefits from the closer trade tie-up with US and Commonwealth Nations.

Note for the Reader:

The above report is an analysis in the context and data analysis has been to derive the message and inferences. The reliance should not be made on this to use for any reason to make publication responsible in any manner. In no event, this publication will be liable for any penal action or damage for such usage or reliance made.

 

References

[1] This figure, from Niebohr, J. “The Four Lies about leaving the European Union”, is adjusted for what is known as the Rotterdam/Antwerp effect – goods shipped to EU ports, but which are destined for Non-EU countries.

[2]Hannan, Daniel. “Look at these Graphs: any possible argument for remaining in the EU has been blown away”, The Daily Telegraph. Published on (07/06/12) and Last Accessed on (15/09/13) http://blogs.tele graph.co.uk/news/ danielhannan/100163336/look-at-these-graphs-any-possible-argument-forremaining-in-the-eu-has-been-blown-away.

[3] Negotiations are ongoing with Japan and Singapore (respectively). http://europa. EU/rapid/press-release MEMO-13-572_en.htm and http://ec.europa.eu/trade/policy/ countries-and-regions/countries/Singapore.

[4] “Estimating the Economic Impact on the UK of a TTIP Agreement between the European Union and the United States (Final Report)” Centre for Economic Policy Research, March 2013, (London).

[5] See, for example, http://www.bbc.co.uk/news/magazine-25548060. O’Neill, Jim.   “The Mint Countries: Next Economic Giants?” The BBC News Magazine, published 05/12/14.

[6] Note: Calculations of GDP are based on Real GDP PPP data from the sources mentioned.

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