Heiner Mikosch, how would you at KOF characterize mature markets?
The term “mature market” is used with different – but often related – meanings and in different contexts. Some authors define a mature market as a market with low innovation. A market with low innovation does not necessarily grow slowly and a market with low growth does not necessarily have low innovation, so the two definitions do not necessarily overlap. In macroeconomics, at KOF, the term “mature market” is not common. Instead, we classify economies or countries as either “developed economies”, “emerging market economies” or “developing economies”, according to their level of GDP per capita. Importantly, developed economies do not necessarily grow more slowly than emerging market economies or developing economies.
What kind of economic development does KOF expect in developed economies such as the USA, Europe and Japan?
Potential growth is estimated to be about 2 percent in the USA, about 1.8 percent in the EU and about 0.7 percent in Japan. Over the mid-to-longer term, potential growth is projected to decline gradually in the EU and in Japan. However, this development is mainly due to a decline in the labor force (aging population) and not to a projection of lower total factor productivity growth in these countries. Macroeconomists generally consider innovations, which boost technological processes, and hence economic growth, as random and unpredictable events, so called “technology shocks”. So, it seems hard to make predictions there.
How likely is economic collapse on the one hand and economic success on the other hand in developed markets?
Slowly-growing developed economies are often more stable than high-growth emerging economies. In essence the volatility of growth is lower in the former countries than in the latter. In this sense, economic collapse and outstanding growth are generally less likely in slowly-growing developed economies than in high-growth emerging economies.
The mere fact that a market is mature does not necessarily imply that the potential for earning high profits in this market is low.
Are markets that are in the “mature market phase” more likely to turn into the “phase of decline” than markets that are in the “growth market phase”?
This an interesting question. It actually raises the follow-up question as to whether the stylized view of a cyclical phasing of markets (from growing, to mature, to decline) is valid in reality, or whether markets can turn from the growth phase directly to the decline phase and can turn from the mature phase back to the growth phase. My prior view is that the stylized view of a cyclical phasing of markets often does not conform to the eruptive and idiosyncratic development of individual markets in reality. As I see it, shifts in markets from one phase to another can be triggered for various reasons, such as implementation of innovations, regulatory changes or changes in consumer preferences. From a long-term perspective, innovations and regulatory changes are, in my view, often best seen as idiosyncratic and largely unpredictable.
Do you see potential for Swiss companies in mature markets?
Definitely yes. The mere fact that a market is mature – in the sense that it only grows gradually in terms of the amount of value added – does not necessarily imply that the potential for earning high profits (which is the ultimate goal of most companies) in this market is low. In my view, innovations still play a crucial role in mature markets. To give a simple example in support of this view: a company that increases its productivity (for example through innovation) relative to the productivity of its competitors will be able to offer its products at lower prices, or will be able to offer higher quality versions of its products. As a consequence, the company will be likely to increase its market share, thereby increasing its profits, despite the fact the overall market does not grow.