by Craig James

Economic Perspectives

Australia may struggle in the upcoming Football (Soccer) World Cup in Brazil, but a new study finds that it has already come out on top of the competition for best performing economy in the world.

CommSec has used economic criteria, rather than football skills to decide the winners of World Cup matches, following the same draw that will be followed over the next month.

How was the Economic World Cup determined?

CommSec used economic criteria to decide the winners of matches, starting at the group stage and finishing with the final match. The criteria used was as follows:

  • Group Stage: Economic growth
  • Round of 16: Government net lending/borrowing (proxy for Budget deficit/surplus)
  • Quarter finals: Gross National Saving
  • Semi-finals: Gross Government Debt
  • Final: Inflation

All the data were sourced from the International Monetary Fund World Economic Database for April 2014. All data readings were the 2014 estimates/forecasts, so that countries could be assessed on current form or performances.

Indicators chosen were those most relevant to economic performance and where data was available for all teams competing in the World Cup.

Economic growth was the first indicator used to compare countries as it was regarded as most representative of economic performance.

What is the value of the exercise?

Clearly this is a light-hearted and different perspective on both the World Cup and international economics. But it does highlight just how well Australia performs on the world stage if economic criteria is used to rank countries rather than football.

No matter what criteria is chose, Australia can hold its head up by claiming world-leading performances.

The exercise also highlights the improvement in African and Latin American economies compared with the so-called “advanced” economies of Europe and North America.

“Less-developed” or “Developing” economies frequently have lower government debt ratios or better budget positions than “Advanced” economies. However, partly as a consequence of weaker economic growth rates, “Advanced” economies frequently have lower inflation rates than those in the “Developing” world.

Group Stage

The following table shows the 32 countries in their respective groups.



Source: http://www.fifa.com/worldcup/groups/index.html
 
Using the IMF World Economic Database, economic growth estimates for 2014 are as follows:



As only the top two teams go through in each group, there were some surprising casualties in the Group Stage. Brazil failed to advance in Group A, losing out to Cameroon and Mexico. In Group B, Spain and the Netherlands failed to advance, still feeling the effects of the Global Financial Crisis (GFC). Australia finished second in Group B to top-finisher, Chile. In Group C, Côte d'Ivoire or Ivory Coast finished on top from Columbia. In Group D, Costa Rica finished top with England squeezing past Uruguay. In Group E, again the European countries missed out, losing to Ecuador and Honduras. In Group F, another surprise with Argentina out, losing to Nigeria and Bosnia and Herzegovina. In Group G, Germany again fails to advance, losing out to Ghana and the US. And in Group H, Algeria and Korea advance at the expense of Belgium and Russia.

Round of 16

Using the IMF World Economic Database, Budget (general government net lending/borrowing) estimates for 2014 are listed below. The winners are those countries with a stronger Budget position than their rivals.



In Match 49, Australia squeezes past Cameroon in a surprisingly close contest. In Match 50, another surprise with African nation, Côte d'Ivoire, beating England. In Match 51, Chile prevails over Mexico. In Match 52, Columbia beats Costa Rica with a low 0.92 per cent budget deficit estimate. In Match 53, Bosnia and Herzegovina prevails over Ecuador. In Match 54, again Korea with a substantially better Budget position than Ghana. And Nigeria beats Honduras in Match 55 and the Algeria past the US in Match 56.

Quarter finals

Using the IMF World Economic Database, gross national savings estimates for 2014 are listed below. The winners are those countries with stronger savings position than their rivals.



In Match 57, Australia beats Côte d'Ivoire; South Korea prevails over Bosnia and Herzegovina in March 58 with a world-leading savings ratio. In Match 59 Columbia beats Chile in an all-South American contest. And in all African contest in Match 60, Algeria beats Nigeria.

Semi finals

Using the IMF World Economic Database, gross government debt estimates for 2014 are listed below. The winners are those countries with a lower debt ratio than their rivals.



In a surprising victory, Australia beats South Korea in the first semi-final with a lower government debt to GDP ratio. In the other semi, Algeria easily moves past Columbia.

The Final

Using the IMF World Economic Database, inflation estimates for 2014 are listed below. The winner is the country with the lowest inflation rate



Courtesy of the good management by the Reserve Bank over time, Australia prevails over Algeria, maintaining a far lower inflation rate. And that proved the difference, leaving Australia as winners of the Economic World Cup.

In the play-off for third place, South Korea edges past Columbia with inflation in South Korea in 2014 estimated at 1.75 per cent, just below Columbia at 1.90 per cent.
 
Value of the Big Picture

Sometimes we need to stand back and look and economic and financial circumstances from a wider perspective. Overall it is clear that Australia has a world-leading economy. But for the economy to stay in good shape will require on-going change and improvement, especially as our population ages, putting pressure on Budget accounts and threatening to put upward pressure on debt.

Still, as is clear from the quarter-final result, Australia’s national savings have built up over time and have potential to build further as mining and energy construction is transformed to resource production and increased exports.