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Romania Among the Rising Stars in the PwC ESCAPE Index

Date: 02/05/2014
Source: PwC
Despite the global financial crisis, most emerging markets have continued to make progress since 2007 in their bid to escape the ‘middle income trap’ (see note 1), according to PwC’s new ESCAPE index (see note 2).

The “middle income trap” occurs when a country's growth plateaus and eventually stagnates after reaching middle income levels.

Central and Eastern European countries such as Poland, Romania and Russia have shown remarkable improvements since 2000. The advanced economies as a whole have fallen back since the global financial crisis hit in 2007, with the notable exception of Australia.

“If we take a look at Romania’s economic development over a longer period of time, we see a remarkable evolution compared to the year 2000. But this is not a guarantee that our country will avoid the <middle income trap> and will make a steady transition to being a developed economy. We need a national project that will foster reindustrialization, attract foreign investments and help consolidate local capital in order to win the modernization wager”, stated Vasile Iuga, Country Managing Partner, PwC Romania.

Many northern European economies have also performed consistently well according to the index, including: Sweden (1st), Switzerland (2nd), the Netherlands (4th), Finland (5th) and Denmark (6th). Outside Europe, Singapore scores well (3rd) while Australia has moved up from 13th place in 2000 to 7th in 2012. Malaysia has also performed well, moving up to 14th place in 2012 from 17th in 2007.

The US and UK have dropped down the rankings of advanced economies between 2007 and 2012 according to the index. But it’s the Eurozone crisis economies – Italy, Spain, Portugal and Greece – that have fallen the furthest since the crisis hit in 2007. Greece has now dropped to outside the top 30 countries that are listed in Table 2 below.

None of the four ‘MINT’ countries (Mexico, Indonesia, Nigeria and Turkey) have yet cracked the top 30, although all four have shown progress on the index since 2000.

“Previously buoyant emerging economies such as India, Brazil and Turkey have run into turbulence recently, showing the need for continuing structural reforms. To graduate to the advanced economy club, economic growth is necessary, but not sufficient. Governments and investors must take into consideration a wider range of development indicators, such as the ones that the PwC ESCAPE index captures”, added Vasile Iuga.


Notes

1. The Middle Income Trap occurs when a country's growth plateaus and eventually stagnates after reaching middle income levels. The problem can arise when emerging economies face rising wages and declining cost competitiveness, and find themselves unable to compete either with advanced economies in high-skill innovations, or with low income developing economies in the cheap production of manufactured goods.

2. The new PwC ESCAPE index provides a holistic measure of a country’s performance and progress over time. The index covers five dimensions relevant to escaping from the middle income trap for emerging economies or, for advanced economies, escaping from stagnation after the financial crisis:

Economic growth and stability
Social progress and cohesion
Communications technology
Political, legal and regulatory institutions
Environmental sustainability

The ESCAPE index looks at a broad range of countries, indicators and time periods, using national level data from official sources such as the World Bank and the IMF. There are 20 individual variables included in the index, each weighted equally at 5% to avoid any single variable having undue influence on the overall results. The index covers 42 of the largest economies in the world, accounting for around 85% of global GDP in 2012. Results are available for three years: a base year of 2000; 2007 as the last year before the global financial crisis hit; and 2012 as the latest available data point for the range of indicators considered here.

3. For more information on the PwC ESCAPE index, please visit our website at: http://www.pwc.co.uk/economic-services/the-economy.jhtml . The top 30 countries in the index in 2012 are listed in Table 2 below (see the full report on our website for results for all countries in the index).



About PwC

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PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

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