Economy & Business Environment Blog


Emerging Markets in 2017: Trends to Watch

Trends Across Emerging Markets: Three To Watch In 2017

Emerging market economies pack a serious economic punch, but will they fire on all cylinders in 2017?

At my research organization, The Conference Board, we project emerging markets to grow at a dismal 3.6% in 2017. Just above half the long-term average growth rate they achieved since 2000. With these economies collectively comprising 55% of the world’s GDP in 2016, how they perform will go a long way in setting the pace at which the global economy grows. Several factors could alter the growth path of emerging markets in 2017 and beyond. Without question, the following three warrant serious attention.

Interest Rates
A hike in the Federal Reserve interest rate will strengthen the US dollar. But as a result, the depreciation in emerging market currencies will make their imports more expensive. Not only will this effect inflation, it also will hamper their ability to produce and export goods, production of which requires imported intermediate goods/raw materials. According to OECD the import content of export – the amount of imported raw material used in the production of exported goods and services – in the seven large emerging economies (i.e. the BRIC plus Indonesia, Mexico and Turkey) spanned from 10 to 30% in 2011.

The rate hike, and the resulting increase in the return over investment in the U.S., will also lead to a return of capital from emerging markets back to the U.S. The lower foreign investment could affect economic growth in countries that rely significantly on foreign investment.

The increasing value of the dollar will affect commodity exporting countries.

If commodities are traded in US dollars, the real revenue earned by these countries will be lower, thus disturbing their balance of payments and ultimately their growth

II. Trade Tumbles

Since the 2000s, a major factor energizing emerging economies has been their integration into the global economy. For them, the door to trade opened wide and fast. Emerging market trade now constitutes more than half of global trade. Nevertheless, global trade growth has nosedived in recent years, particularly after 2011.

Recent research also suggests global import intensity in the post-2000 years was driven strongly by international production fragmentation, which has stalled since 2011. This might reflect the increasing ability of countries to produce upstream products for domestic use or increases in trade restrictions. As such, the growth of trade looks unlikely to increase in the year ahead. Upcoming potential trade restrictions by the U.S will only further slowdown momentum.

Also contributing to the reduction in growth of global trade volume is falling commodity prices.

It constrains the ability of commodity exporting countries to import from economies like China. Within China, the change in the structure of production and consumption favoring less trade-intensive services has reduced its import intensity. Thus, the overall reduction in the import intensity within emerging market economies also has contributed to the trade slowdown.

Lastly, advanced economies face a looming and serious labor shortage problem, which might increase pressure for more automation and digitization of production processes. There is evidence that low-wage jobs are and will remain vulnerable to technological substitution. Given the increasing wage pressure in emerging economies, this might then reduce the off-shoring of low and middle-skill jobs. This would be a secondary effect, and hence will likely hamper future trade growth.

III. Productivity Putters

Labor productivity growth drove the remarkable growth surge in emerging market economies. Yet, most emerging market economies still lag on that front and thus have significant potential to catch up; their relative productivity pales compared to advanced economies.

For instance, today’s labor productivity levels in China and India, respectively, clock in at 1/5th and 1/7th of the United States’. Moreover, these economies have experienced declines in labor productivity growth in recent years. When you consider the likely decline in trade, which I detailed in trend #2, continuation of weak productivity growth looks more and more likely.

For some emerging markets, the chance to catch up in productivity moves farther out of reach by the day.

Consider China. The country is shifting away from an investment-manufacturing-export dependence model to more domestic consumption of goods and e-services. This transition looks all but certain to slow down the brakes.

But in places like China, a return to investment-led growth in productivity is unlikely to push up productivity. To energize and sustain productivity growth, emerging market must look to equipping their populations with new and necessary skills. Many of these economies face severe skill challenges; even more worrying, they continue leaving these challenges on the back burner.

If some emerging markets fail to regain robust productivity growth, they will likely fall into the ‘middle income trap’ phenomenon that has impacted several fast growing Asian economies.

The Bottom Line

The current global environment is not conducive for higher growth in emerging market economies. In the wake of declining global trade, eroding productivity potential, and the foreign investment possibly moving elsewhere, what can help change course? The enactment of policies strengthening domestic demand and easing supply-side bottlenecks would go a long way. Yet that remains a huge challenge.

This piece originally appeared in “Emerging Market Views.”


3 Things the Jobs Report Doesn’t Tell Us About the US Economy

This blog is authored by Gad Levanon and Diane Lim.

Like every U.S. jobs report, this morning’s report gave an incomplete snapshot of the labor market’s current condition and trajectory.

Make no mistake-the Bureau of Labor Statistics (BLS) report remains the gold standard in terms of being the highest quality, most reliable labor market data out there.

But here are three reasons why this monthly report fails to provide a high-resolution view of the labor market-a view that we economists need to better understand what’s going on.

It doesn’t fully capture unconventional jobs like Uber.

The survey questions fail to fully capture the rising trend of non-standard job arrangements. For example, jobs associated with mobile platforms, like Uber, along with the broader population of the self-employed, including temps and contractors.

These types of work arrangements are not always viewed or counted as employment by either the “worker” or “business” surveys that feed into the BLS report. From the worker’s perspective, a part-time (and often sporadic) activity, even if paid, can be considered more of a hobby or side gig than a “job.”

From the business’s perspective, hiring a “consultant” for specific services is not the same as bringing more employees onto the company payroll. So when the surveys ask workers about their employment situation and ask businesses to “count jobs,” these non-standard work arrangements typically fall under the survey’s radar, and thus don’t get captured in the employment report.

It describes the employment conditions of groups, not individuals.

The report aggregates businesses into industry categories and workers into large demographic categories. Any particular group might show close to zero change in the number of jobs or employment status. For example, in today’s jobs report the manufacturing industry shows a gain of only around 5,000 jobs out of 12.3 million, and the demographic categories of adult men, whites, and those with college degrees each show no change in unemployment rates.

Yet if we could look more closely across different parts of the country, different companies within an industry, and even different occupations within a company, we would likely see plenty of job churning. (In the manufacturing industry, for example, around 275,000 jobs are gained or lost in any month.) And we would likely see changes in the composition of jobs across the narrower categories within the broader ones. Those more micro-level movements would give us much better clues about where the overall labor market and economy as a whole is headed.

It says “a job is a job” rather than identifying “whose” job it is.

Finally, the two separate surveys that feed into the employment report make it difficult to figure out how employment arrangements are distributed across real people. The establishment survey counts jobs as reported by businesses, while the household survey measures employment and unemployment as reported by individuals.

One person can hold multiple jobs, but a job is a job in the establishment survey. Each job in the establishment job count cannot be linked to specific people in the employment status household survey. A person employed in three part-time jobs can be counted as one “full-time” employed person in the household survey (holding multiple jobs), and three jobs in the establishment survey. So more jobs counted from the business side does not always mean “more employment” from the household (real people) perspective.

The monthly employment report falls short in providing the microscopic, high-resolution view of the labor market that economists yearn for. That’s why BLS does so much more, and collects so much more data, than what goes into the monthly employment report-a prime example being their survey of contingent and alternative employment arrangements. They last fielded this survey a dozen years ago in 2005, but have scheduled the next one to be fielded this spring, with the results set to come out in late 2017 or early 2018.

These kinds of supplemental surveys that collect more granular, micro-level information on employment status are essential for economists to have a better understanding of today’s uncertain and ever-changing economic conditions.

This piece originally appeared in “The Hill.”


How The G-20 Leaves Emerging Markets In Limbo

Trade Sentiment Lingers, Emerging Markets Face Headwinds

There is little doubt that anti-trade sentiments are clouding the future of the global economy.

For proof, look at the March G20 meeting in Frankfurt, Germany, which made headlines for excluding anti-protectionism language in its joint declaration. This clearly  broke the G20’s tradition of giving a thumbs-up to trade. If public officials backpedal on their commitment to open trade, they will jeopardize prosperity worldwide, especially in emerging markets.

Three things may happen if the anti-trade train continues to gather steam. Every one of them will surely keep business leaders up at night—and not for celebration.

Rising Volatility

While emerging markets are usually volatile, they have enjoyed high growth as global growth and trade expanded. Now, the pro-trade and pro-growth environment that brought sustainable global growth could be giving way to one that is considerably more uncertain as a number of mature economies turn their attention inward. Most emerging market economies depend on demand from these mature economies, so they are especially vulnerable to rising trade protectionism.

Forecasts suggest that 2017 global economic growth could inch up to 2.9 percent – up from 2.6 percent in 2016 and slightly better than earlier projections on the back of better performance from energy-producing emerging economies and some momentum in the US, Europe, and Japan. But uncertainties—including those on the trade front—continue to weigh down growth prospects for emerging economies, especially India, Mexico, Turkey, and Saudi Arabia.

On the upside, the US, Europe, and Japan are experiencing stronger internal growth dynamics. Still, this slight boost—even if it fully materializes—will lack the economic punch to ignite emerging markets.

Trade Markets Reshuffled

The evident lack of consensus from the G20’s March meeting on commitment to free trade puts trade-boosting agreements at risk. In particular, there’s America’s marked shift in its trade stance—namely, the death of the Transpacific Partnership (TPP). To make matters worse, little prospect exists for progress on the Transatlantic Trade and Investment Partnership between Europe and the US. While the Comprehensive Economic and Trade Agreement between the European Union and Canada passed, if barely, the future of the North American Free Trade Agreement (NAFTA) moved further into uncertain territory.

How can a reversal of trade fortunes affect emerging economies? Consider Mexico. The US market accounted for more than 80 percent of Mexico’s 2015 exports, according to the World Trade Organization. While that number overstates Mexico’s reliance on the US economy (by also including US imports that are re-exported), Mexico’s reliance on the global economy nonetheless remains intense. Recent Conference Board research using the World Input-Output Database reveals Mexico’s dependence on the global economy has significantly increased in the past two decades. In fact, global demand currently helps to generate close to 20 percent of Mexico’s GDP, a major chunk of it being from the United States.

As the larger trade partner within NAFTA, the share of US demand in Mexico’s GDP that results from demand from abroad is large—about 70 percent on average during the past 15 years. The opposite is not true. Mexico’s economy will suffer both from US trade protectionism and, indirectly, from US-engendered global trade protectionism.

Productivity Puts On The Brakes

Over the next decade, the world economy looks all but certain to putter along. The aging workforce and slowing productivity growth represent structural trends that are nearly impossible to change in the near term. The world economy will find it hard to reach and maintain 3 percent growth. While emerging markets will continue to contribute the lion’s share of global growth, they are not immune to the major trends slowing global growth. Examples are China’s aging workforce and Latin America’s slowing productivity, notably in Brazil.

Emerging markets will grow on average 3.6 percent per year in the next decade, down from 4.1 percent in 2012-2015. For the medium term there are no signs yet that policy changes will alter the trend. On the contrary, signals from the G20 finance ministers’ meeting suggest the opposite.

If the global free-trade agenda gives way to greater protectionism, the repercussions could put emerging economies in limbo. Also, the potential positive effects of trade on productivity and competitiveness recede farther out of reach.

Looking ahead, the outcome of several elections in Europe this year will affect how far anti-trade sentiment will advance. The next G20 summit will take place in July, and it remains to be seen whether this twelfth meeting of G20 leaders will provide more hope for emerging markets instead of more gloom. To a large extent, their prosperity—and that of the entire global economy —depends on it.

This piece originally appeared in “Emerging Market Views.”


Three Trump Actions That Could Rattle Europe’s Economy

While no longer fashionable in the popular discourse, trade has been a key engine of prosperity. Relations across the Atlantic have been solid and deep but recent recommendations from the White House risk souring that economic friendship.

Admittedly, TTIP has never been really popular on both sides of the Atlantic, and the Trump Administration might well put the nail in the coffin. Today, maintaining the status quo looks like the best case scenario as a result of the following three Trump proposals. If they’re enacted, they look all but certain to keep Europe’s business and policymakers up at night.

1.  The border adjustment tax

While still under consideration, the proposed border adjustment tax calls for goods and services entering America to face a price adjustment. It would resemble a VAT but a crucial difference is that it would apply only to imports. The Trump Administration and others in Washington suggest the idea as a way of collecting revenue to accommodate for the resulting shortfall from steep tax cuts, and to promote a protectionist agenda focused on “Buy American”.

Moving from a production to a destination-based tax system in the world’s leading economy can have gigantic consequences for business worldwide. Even though economic theory suggests that the tax could be entirely offset by an equivalent appreciation of the dollar, it is difficult to imagine that this happens entirely and fast enough to avoid adaptation measures.

The border adjustment tax could force European companies to cut costs to stay competitive and to reorganise their supply chains to source locally to serve the North American market. While there may be some advantages to that, such as being more environmentally friendly, local sourcing faces constraints of various kinds: availability of natural resources as well as capabilities and know-how that goes into the production of goods and services. As a result of the adjustments that the tax would engineer, business in the US and Europe will face higher costs. That will inevitably translate into higher prices for consumers.

2.  TTIP is out; new tariffs may be in

Once upon a time, there were talks to harmonise regulations between America and the EU to strengthen trade and prepare the rules for the 21st century. Now discussions centre on complicating and increasing them. While TTIP remains in a deep freeze, talk of new fines coming out of the Trump White House are alive and well.

If the border adjustment tax does not go through, an increase in tariffs could be the other barrier to trade. One proposal under consideration – as an example – is to slap 100% tariffs on European meats and Vespa scooters. Tariffs would translate into much higher prices for American consumers and higher costs for American companies that use European products as intermediate input. Moreover, they are rarely unilateral: Since the border adjustment tax and ad-hoc tariffs are not compliant with the World Trade Organisation rules, these measures are likely to trigger retaliation.

A trade war would harm Europeans exporters that contribute to a surplus worth €100 billion with the US. This surplus derives from the export of goods divided between 11% of agricultural products and 88% manufacturers in 2016.

3.  Corporate tax wars

It may surprise Europeans that the US corporate income tax rate ranks highest among mature economies, at 35%. To put that in perspective, the Finns pay 20%, the French pay 34%, the Irish pay 13%, and the Italians pay 28%. At the same time, revenue from corporate taxes as a percentage of GDP is among the lowest, because of loops in the tax law and profit shifting.

Corporate taxation (a national competence in the EU) is a delicate issue for Europeans – just consider the irritation from the $13 billion fine the Commission issued to Apple in 2016. Well-paid lawyers have engineered dizzying tax arrangements to take advantage of the lack of harmonisation in Europe and the loopholes created by the existence of a single market without a single taxation.

The risk of new tax competition from the US will likely exacerbate this tension among EU member states that use tax rates to compete amongst each other for business. Not only that: it would blow the new attempt by the European Commission to create a common tax base for large companies that operate in the single market (i.e., firms with a global turnover of over €750 million per year).

As a result, trust in the EU is damaged, fueled by eurosceptics who use the case of taxation to argue that the EU serves the purposes of multinationals better than its citizens. In the midst of this eternal contention, proving that large companies are willing to pay their fair share of taxes is left to individual will and stewardship.

This piece originally appeared in “EurActiv.”


The Real Reasons Behind the Fall in America’s Manufacturing Jobs

This morning’s employment report shows a healthy increase of 235,000 total (nonfarm) jobs last month—pretty much across the board, in all major categories except for retail services. The manufacturing sector alone gained 28,000 jobs—a stronger showing than we’ve seen in a long time.

But we shouldn’t break out the champagne over one month’s worth of manufacturing jobs. Compared with a year ago (February 2016), manufacturing has been essentially flat (up just 7,000 jobs). Looking further back it becomes obvious that manufacturing just has not followed the typical storyline of an industry merely living through and recovering from the Great Recession.

In fact, the saga of manufacturing jobs is not so much about the cyclical recession, but more about more fundamental and longer-term economic trends.

Over the last 10 years, while other sectors have made great strides or at least inched upward, manufacturing has lost over 1.6 million jobs—down from nearly 14 million in February 2007 to 12.4 million in today’s report. Moreover, as a share of total employment, manufacturing jobs comprised just over 10 percent of total nonfarm jobs in February 2007; now, a decade later, they comprise only 8.5 percent.

It doesn’t look likely that once the economy has fully recovered from the recession, that manufacturing will be back to where it was before the recession (in the “old normal”). So what has dealt this more permanent blow to manufacturing?

Believe it or not, it has little if anything to do with public policy. Look to four factors.

First, consumers nowadays increasingly opt for “experiences” rather than “things.” This largely results from the changing demographic composition of American consumers. The rise of retiring, empty-nester Baby Boomers naturally leads to more demand for health care services and tourist destinations. At the other end of the generational spectrum, Millennials can’t live without services like Uber and Netflix; that also means they don’t need their own car or television. A trend away from “things” to “experiences” means jobs in service-providing industries rise (like health care). At the same time, manufacturing jobs in goods-producing industries fall.

Second, there’s automation. With each passing day, companies from a range of sectors use robots to a greater and greater extent. Their capabilities particularly suit them to work alongside or take over the type of work done by manufacturing production workers—tasks that are highly physical, precisely defined, and routinized. And automation will only intensify down the road: a recent McKinsey report determined that about 60 percent of time across all manufacturing jobs is spent performing activities that current technology can automate.

Third, off-shoring production often comes at a cheaper price tag. Locating manufacturing processes in other countries allows companies to leverage the less expensive labor available. Moreover, America’s native-born pipeline of young workers shows no signs of gravitating to the manufacturing sector. Immigrants are not well represented among manufacturing workers either. So we don’t enjoy the benefit of robust supply.

And last but not least, the manufacturing sector as a whole has little worker mobility. During the Great Recession, workers who lost manufacturing jobs disproportionately consisted of middle-aged white men living and working in the Midwest. These workers spent decades at a particular company or in a specific line of manufacturing work. Given their family roots and community ties, they cannot easily move to other parts of the country, where other forms of work (even manufacturing) may be more plentiful.

Mudslinging about which party dealt a blow to manufacturing can make for good politics. But the trends make clear: no public policy could have so much influence as to stop all the fundamental, economic reasons for the industry’s decline. We can’t fight the economic forces driving manufacturing employment, and neither should we try. Such a strategy is inevitably counterproductive. We should focus our public policy efforts on helping those manufacturing workers who got laid off during the Great Recession find a “new normal” – one that maximizes both their desired participation in the labor market and their well-being.

This piece originally appeared in “The Hill.”


This Lost Generation May Finally Buy Pricey Things Now That Their Paychecks are Soaring


This piece originally appeared in “The Street.”


Want More Innovation? Up Your Diversity and Inclusion Game

To achieve true digital transformation, organizations need to be open and inclusive to tap knowledge and ideas that reside both internally and externally in other companies and institutions. Partnerships, especially nontraditional ones, and collaboration are the basic elements of successful innovation.

In its report Inclusion + Innovation: Leveraging Diversity of Thought to Generate Business Growth, The Conference Board found that the most innovative companies in its survey—those with a self-reported track record of continual organization-wide innovation—were more than twice as likely to describe their company as highly inclusive as those with sporadic innovation in some business units. The findings also show that consistently innovative companies are significantly more likely than inconsistent innovators to be extremely effective at encouraging external innovation networks.



This blog post is the fourth of four installments in the series, The Future of Digital Transformation and Innovation. Want more insight into how successful companies are embracing digital transformation? Discover the very latest research and advice from experts and leaders in the new report, Beyond Technology: Building a New Organizational Culture to Succeed in an Era of Digital Transformation.



What Young Workers Want—5 Expectations in the Digital Age

Making any big organization-wide change is challenging and bringing digital transformation to a company or institution is no exception. Knowing your employees helps when asking them to make changes, which is why understanding millennials and their expectations is critical.

Research from The Conference Board shows these five factors are high on the list for job seeking millennials:

  • Most of today’s workforce belongs to an aware, mobile, and highly connected generation, and expectations are high.
  • Prospective employees and incumbents want a consumer-grade experience.
  • People who work remotely want to easily stay connected to their organizations.
  • They want social collaboration in addition to working teams and affinity groups.
  • They want to do work the way they want to and where they want to.

Source: The Conference Board, Innovation Webcast Series, Innovation & Employee Engagement in the Digital Workspace, April 2016.

This blog post is part three of a four-part series, The Future of Digital Transformation and Innovation. Join us next week to find out why diversity and inclusion are so critical to innovation.

Download the full report, Beyond Technology: Building a New Organizational Culture to Succeed in an Era of Digital Transformation. You can also download keynote summaries from the unConference to learn more about transforming your organization, and find invaluable research and insight from The Conference Board.


What Makes a Leader Highly Engaging in the Digital Age?

If digital transformation is a top priority for your organization in 2017, you may be overlooking a critical factor to success: engagement. Because digital transformation within an organization requires systemic, enterprise-wide change, everyone at every level—from the mail room to the C-Suite—needs to feel motivated and empowered to make that change.

Research by The Conference Board shows that in highly engaged organizations, leaders at all levels are able to foster a strong sense of purpose, pride, passion, and personal fit in their workforce. For example, they provide a sense of meaning and direction (purpose) by developing a compelling vision and communicate that vision in a way that others can see and want to follow. They foster pride by setting high standards and empowering employees, inspire passion by challenging the status quo and encouraging innovation, and unlock each individual’s potential (personal fit) by driving development and growth.

Leaders who create such a richly engaging environment share 12 specific behaviors, which are the core elements of their leadership DNA.

Figure-4-12-Critical-Behaviors-CM-DT02 (2)


Learn how to foster engagement in your workforce: Download The DNA of Engagement report by The Conference Board .

This blog post is part two of a four-part series, The Future of Digital Transformation and Innovation. Join us next week to find out what young workers are looking for in the workplace.

For more on what digital transformation means for your business, download the report, Beyond Technology: Building a New Organizational Culture to Succeed in an Era of Digital Transformation. You can also download keynote summaries from the unConference to learn more about transforming your organization, and find invaluable research and insight from The Conference Board.


Is Your Organization Ready? 5 questions you should be asking about digital transformation

Digital transformation requires asking some hard questions about an organization’s basic operating assumptions, business models, available talent and skills, and organizational culture. Here are five questions to help kick start what is often a complicated conversation.

1. Does our organization have a digital strategy that goes beyond implementing technologies?
2. Do our leaders have the digital vision, knowledge, and skills to lead digital transformation? Can they communicate the vision, business case, and operational changes to the workforce?
3. What are the organizational capabilities we will need to execute our digital strategy? Do we have the expertise and processes to determine the best way to build those capabilities, e.g., using talent, technology, or a combination of both; crowdsourcing; or using ecosystem partners?
4. Does our current organizational culture support the elements of digital transformation such as collaboration across internal and external boundaries, agility, risk taking, etc.?
5. Do we have the talent needed, where we need it?

This blog post is part one of a four-part series, The Future of Digital Transformation and Innovation. Join us next week to discover the 12 behaviors of highly engaging leaders. Do your leaders have them? Do you?

How the Digital Transformation Will Transform Everything

An blog chart

Download the full report and articles from The Future of Digital Transformation and Innovation UnConference to learn how to make your transformation effective, discover why this transformation is more consequential than the industrial revolution, and get more research and insight about digital transformation from The Conference Board.

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