JUNE 2017 / NO. 1
TAGS: EUROPE, EXOGENOUS FACTORS, CHINA, JAPAN, SOUTH KOREA, TAIWAN, OIL, IT, CONSUMER TRUST, ELECTIONS, BREXIT, OECD

Exogenous factors drive growth in Europe

“A winning mood in Europe doesn’t guarantee that the structural recovery of the European economy will last during the next couple of years. Let’s look at this”
Economic indicators have improved since the summer of 2016, resulting in an accelerating positive level of economic performance in Europe and the other OECD-countries. Entrepreneurs and consumers are getting back into a good mood. The professionals in government, banks and other institutes did not see this coming. In our strategic intelligence best practices, we use the ‘Strategy as Active Waiting’ management tool to identify early indicators of change and create possible courses of action.
Below, we identify positive indicators which drive the winning mood, as well as some potentially negative ones which might disturb this scenario.
Seven exogenous factors have driven economic recovery in Europe since the summer of 2016:
  1. Governmental policies in China have improved economic growth. One indicator is Chinese imports
  2. Growth of regional exports and thus production. Exports have increased in Japan (+11%), South Korea (+27%) and Taiwan (29%)
  3. Divestments in the oil & gas sector stopped when the price of oil price reached US$ 30.00 in mid-June 2016. The relevant indicator is the rising oil price
  4. Stock supplies decreased and stopped by mid-June 2016. Production levels are again increasing
  5. Worldwide growth of investment in IT. This means more activity and future productivity growth. The relevant indicator is the SOX-index, the index of stock prices of electronics companies
  6. Stopping cost-cutting by the majority of governments. The relevant indicator here is the consumer trust index
  7. Recovery of assets for consumers, companies and banks, has almost been completed. Here the relevant indicator is consumer spending
There are four exogenous factors which drive negative economic recovery and which might apply in the short-term:
  1. Elections in France, Germany in 2017 and in Italy in 2018
  2. Negative influences resulting from the Brexit-process
  3. Down turn leading to a renewed debt crisis in Greece and may be Italy
  4. Increase of inflation and monetary policy in the US
It is amazing that the acceleration in the recovery of the global economy was hardly foreseen. If management can identify the right applicable exogenous factors and monitor these continuously using its company radar, this can enable them to foresee changes in the economic climate in a timely fashion before anyone else.
“It’s compellingly seductive to try to predict the future as through it were a quantifiable extrapolation of the past”
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