E7 to overtake G7 Banking Sector

There was an informative piece in the NZ Herald on Saturday which alluded to the fact that, according to PWC, the emerging economies’ banking sectors are expected to outgrow those in the developed economies by an even greater margin than what was thought.

By 2036 (see graph below) the banking assets and profits of the the E7 countries are expected to exceed those of the G7 countries. One of the main reasons for this was that the emerging economies were not as exposed in the financial crisis to the alphbet soup of investment vehicles – CDO’s, CDS’s etc. Also their banking systems are in a much more stable condition to fund long-term growth within their countries. The table shows projections of when emerging economies will overtake other G7 countries. PWC project that India could become the third largest domestic banking structure by 2050 after China and the US, but ahead of Japan, the UK and Germany.

E7 = China, India, Brazil, Russia, Mexico, Indonesia, Turkey
G7 = US, Japan, Germany, UK, France, Italy, Canada

The German economy – it’s not all over!

“They think it’s all over” is a well known quotation from Kenneth Wolstenholme’s BBC TV commentary in the closing moments of the 1966 FIFA World Cup Final, where England beat West Germany 4–2 after extra time. But it’s not all over for the German economy. Some interesting facts from The Economist on the economy as compared with its G7 colleagues.

* Highest growth of GDP/Capita among the G7 countries
* 6.6% unemployment – second-lowest
* Smallest budget deficit and least government debt relative to GDP
* Current account surplus which is 5% of GDP
* Household debt 99% of disposable income. UK – 170% USA – 128%

Although there are major budgetary issues in EU countries this has impacted on the value of the euro. With a falling euro this makes euro country exports more competitive and Germany has definitely benefitted from this. However, to rely on exports as the engine room of your economy is risky as recessions overseas can quickly revoke any growth. Last year domestic demand did increase and unemployment was the lowest rate for nearly 20 years. This could could put pressure on wages which may mean greater domestic spending.