2011 Global Economic Outlook
“The era of good feelings associated with the heyday of globalization has gone forever,” say top economists. I will agree and believe this is an entirely good thing that will enable our shattered world to recover from a devastating global recession. Often times we mix up what feels good at the time with what is the right course of action over the long term. The great recession has taken its last breath but has taught us a great many valuable lessons during its pre-destiny and ultimate reign. The main lesson being that open competition is good. Once we start regulating how much we can achieve we start sabotaging our own continued growth and prosperity. Linking a global currency to a global government would have been a catastrophe. I’m glad that the wise and learned have taken this lesson out of the tragedies of the past 3 years.
Recovery will continue to be slow around the world, but we are in a state of recovery nonetheless. The biggest difference from days past will be which countries will lead the charge to mending our torn financial fabric. In this edition be prepared for some surprise trends and projections unlike many are foreseeing. I caution you however as you digest this information that you may think I’m totally off my rocker on some of my predictions, but recall, I was almost entirely correct about last year’s winners and losers. I will begin evaluating several countries and then streamline my analysis with industries to watch. Happy New Year and good health in 2011.
CONDITION OF THE US
US academics are projecting a 3.4% growth in the US this year. I will disagree. My mark for US growth in 2011 will top off at 1.5% but we are most likely to experience a 0.9% growth by year’s end December 31st 2011. The US is riding high after strong 2010 end of year retail figures rose by 3.1% over 2009 but it is overlooking that the expectation was at 3.4% and November figures were a full 2.1% higher than December. The trend should have been reversed to justify complete optimism in a stronger growth pattern. Economic growth and sales will also continue to weaken as inventory cycles top out.
Meanwhile, households and banks are still fixing their balance sheets and will keep a wary eye on credit expansion further crippling any long-term sustained growth above 1.5%. Banks will loosen credit by the third quarter of 2012.
Further, the dark cloud of unemployment still looms heavy over the United States horizon. Consequently, corporate gains should peak in the first quarter and then level off as high unemployment and consumer confidence subside and take their toll on the momentum of profit increases by businesses. Indeed the unemployment rate in the US fell in December; however the 103,000 jobs that were created last month are well short of the 200,000 per month figure needed to sustain stronger growth and lasting improvements to an economic condition. Our average pace for job creation last year was 94,000 per month. Moreover, 8.4 million jobs were shed over the span of the last 3 years, but only 1.1 million were added in the private sector. Government expansion does not contribute to an economic recovery, neither has it done so historically nor will it do so in the future.
Though in fact, the government has itself cut 20,000 jobs last month. At December’s employment pace, it will take until 2016 to make up for the jobs lost and finally establish a balance in the marketplace. As of today, 6.76 million Americans have stopped looking for work and in a recent survey say they will not look until the middle of next year. With those not receiving unemployment and those who have forgone the application thereof altogether our real national unemployment figure is closer to 10.8% as opposed to the public figure of 9.4%. Though, recovery in the US will be faster than 2016, I anticipate tolerable levels of employment by the end of 2012. However, we expect a 5.8% decrease in average salaries from $50,303 to $47,382 by this time.
CLASH WITH CHINA
Continued conflicts with China will further hinder US economic expansion. In addition to the gap between political ideologies the following factors will heighten the tensions between the two nations. First, the rise of China is becoming increasingly associated with job losses for ordinary Americans and a rising threat to American power. Second, China’s currency policy which is aimed at keeping the Yuan undervalued against the dollar will further aggravate trade relations between the two nations and protectionist legislation in the US will rise sharply. The move to make the Yuan (renminbi) a global currency for international trade has already begun. It has launched trading of it in the US. Third, the Chinese military buildup in the Pacific has gotten the US business population and governing bodies on edge and up in arms. The J-20, a new Chinese stealth fighter has just debuted on the global stage. In response the US will step up military exercises in the region opening the doors to economic policies as the weapon of choice. Additionally, China’s continued reluctance to tighten the squeeze on Iran while instead pursuing their own energy strategies will further harm relations with the US.
China’s economy will see an 8.4% growth in GDP but look for hostilities between the Communist party and the rising tide of young intellectuals from within who disagree with the current order. The US will be blamed for this movement. China will engineer a slowdown in the Asian markets.
ASIA
Uzbekistan will lead Asia in economic growth this year with an 8.5% increase, followed by China then India with a GDP of 8.2% and we will see inflation in India begin to fall back to normal levels from last year’s 10% to about 6.4%. Afghanistan holds a commanding fourth place in Asia with my prediction of a 7.2% growth this year, followed by Sri Lanka at 6.6%, Indonesia at 6%, and Kazakhstan at 5.5%. Australia will be a safe place to put money as it is expected to achieve a 2.6% growth this year.
MIDDLE-EAST AND AFRICA
This region’s predictions bear the most surprises of all. Ethiopia will carry the torch for the Mid-East and North Africa with a solid 10% GDP this year; it will be followed by Tanzania at 7.1%, Angola at 7%, Iraq with 6%; Lebanon with 5.8% despite the government collapse last week, and Syria with 4.6%. The Gulf States will remain solid hovering at an average 3% GDP, but the greatest gains will be made with the countries mentioned hereto.
EUROPE
Europe is a battered child that will require a great deal of rehabilitation for the next five years. It will demonstrate the least impressive gains next to North America but leading the pack will be Russia with a 4% GDP improvement over last year. Ukraine will be firmly on Russia’s heels with a 3.9% GDP, trailed by Turkey at 3.6%, Poland at 3.4%, Estonia with 3.2%, Latvia 3%, Lithuania with 2.9%. Greece will play the largest role in stifling the European economy as a whole with a negative growth of -3.5%, Portugal will play second anchor with a negative growth of -1%. Germany, the Netherlands, France and Switzerland will stay fast with a GDP figure lingering between a 1% to 1.6% growth pattern.
LATIN AMERICA
Chile will champion the greatest growth in the Latin American economies, though smaller in size then Brazil will outpace it by 1.2% growth reaching 5.7% by year’s end. Brazil will experience the second greatest growth with 4.5%, followed by Colombia at 4.4%, but tied with Paraguay and Peru for second place. Colombia will grow at the same pace as Uruguay.
Mexico will expand its economy by 3.5% by the middle of the year but will soften in response to slower US growth to 3% by December 31st.
Overall global GDP growth will be a strong and promising 4%, while World trade growth will exceed 6% to 6.3%. We can attribute this to the rise in trade with emerging markets including India, North Africa, the Middle East, Eastern Europe and segments of Latin America.
INDUSTRY STRENGTH
Banking
Western banks will continue to shed jobs amid tightened fiscal policies in these territories while China and Hong Kong are expected to boost their workforces in three quarters of their banks. Lending will remain slow with a net overall increase in lending of 1.3% in the US. Industry Strength – Weak
Real-estate
The worst may be over for this sector but recovery to pre 2006 levels is still a good 3 years away. Commercial rents will fall across all categories in the US with industrial being the worst hit and retail sites the least hit. In some parts of Europe commercial property prices will fall another 15% and housing prices in the US will slip another 7%. Industry Strength – Weak
Travel and Tourism
The travel industry will experience a 5% rise in international tourist travel, France will see the largest gain in visitors. Leisure travel is still expected to bounce back faster than business travel as I expect business travel rates will take at least another 3 years before returning to pre-2008 levels. Revenue per available room in the US will climb by at least 6.7% this year taking a commanding position ahead of any other country. Industry Strength – Good
Health Care
Global health care spending as a share of GDP will increase to 9.9% though the US is expected to outlay nearly 16.2% of its GDP far outpacing the rest of the world as health care costs rise due to sweeping legislation passed last year.
Luxury
Spending on luxury items will increase by 4%. Industry Strength – Good
Food and Farming
Expect overall food prices to increase by 5% this year due to supply disruptions and health department regulations. Wheat prices will increase by approximately 8%. Sugar prices will drop by 10%, and coffee prices will decline by 5%. Good news for coffee lovers. Industry Strength – Mild
Entertainment
Television and movie enterprises will experience a 5% and 7% increase in demand this year respectively while music and digital music outlets will expand by a mere.5%. Actors are more likely to find work in 2011 than musicians. Industry Strength – Mild
Information Technology
Far and wide, IT is the most stable industry to enter into in 2011. Hardware purchases will slow to 7% from 10% but will remain strong for the duration of the year. Software services will increase by 4% while spending on IT will increase to 4.6% for a total industry capitalization of $2 trillion. Industry Strength – Strong
CONCLUSION
I’ve made some bold and perhaps at times controversial predictions above. This coming year will not be without its challenges, as with all years. In some instances over the course of 2011 some of us may experience anxieties about the uncertainties we will undoubtedly face as we try to make sense of all the “expert” predictions for the future. But we must remember that as leaders it is imperative that we listen to and consider all opinions, while remaining true to ourselves, our values, our beliefs and focusing on our business’ core strengths. It has become incumbent upon us that we continue to move forward with realistic expectations until the tea leaves change and the dust from this calamitous crisis finally settles. As I embarked upon bringing all this information together for you it was my hope that I could at least present a practical foundation to stand upon as we spy out into the ever-changing world and scan the horizons for an indicator of what’s to come.
War will break out in 2011, there is no question, but it will not be a war fought with conventional weapons or nuclear missiles. It will be a war of ideologies that will test the constitution of the greatest countries on the planet. It will test the resolve of every individual seeking to gain a fundamental understanding and clarity of what is to become of our world. The answer is not to dig our heels down into the ground and wait for another storm to come. The answer is to venture out into the unknown and siphon as much knowledge as we can from the resources around us to make an educated, realistic and commonsensical decision that will finally set the wheels of the global community right. None of us that has ever achieved greatness has done so while waiting on the porch for someone to come and tell them the coast is clear. For I venture to say that the coast will be whatever we make of it, it is after all our coast. But before we can make any decision, we must be armed with knowledge, information, patience and a firm resolve in order to succeed and weather any potential storms ahead.
Wishing you a blessed New Year for 2011. Good luck in forging your roads.