World in action
06/08/2009
As governments have been frequently reminding us, we are in the middle of a global crisis requiring co-operative solutions. The theme was emphasised by this year’s meeting of G20 leaders in London, as they struggled to achieve consensus on measures to avert an economic meltdown.
Equally, the headline figures produced by organisations such as the International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD) reinforce the message that the countries of the world are united in bearing the pain of falling output, turbulent markets and a continued lack of liquidity in the banking system. For example, when the OECD issued its June report on the outlook for its member states, the study predicted an overall contraction of 4.1%. Meanwhile, the IMF, projecting on a broader canvas, has estimated “world growth to fall to its lowest level since World War II”.
However, the headline figures hide a mixed picture. While Europe and the US have certainly been hit hard by the recession, some economies elsewhere in the world have continued to grow, albeit at a slower rate than was previously the case. No one should underestimate the pain China is feeling in the face of falling demand for its exports, but the Chinese economy is, nonetheless, expected to expand by somewhere between 6.5% and 8% this year. Another key emerging Asian nation, India, is also growing, despite a decline in exports.
This means the ongoing debate over the appearance of economic ‘green shoots’ has a complex international dimension. For companies that do all or most of their trading within the UK, it’s natural to plan for recovery on the basis of British indicators. But for those businesses that trade internationally, there are opportunities to take advantage of a recovery story that is likely to be subtly or even radically different, even within the European Union.
Drawing on member firms from the Baker Tilly International network, we’ve pulled together information from eight of the world’s key economies, looking at their growth prospects for this year and next. We also consider the sectors that have been worst affected by the recession, those most likely to lead the recovery and the overall mood of the business community.
In general, there’s an expectation that the world economy will begin to gather speed during 2010, but the devil (and the opportunities) are in the detail. In some cases, notably China, Singapore and the USA, big government stimulus programmes and infrastructure projects are expected to lead the recovery, providing opportunities for local and perhaps overseas businesses. Elsewhere, badly hit sectors are expected to bounce back – again creating opportunities.
The world economy is still going through some dark times, but as this survey underlines, businesses should also be thinking about how and where to take advantage of the upturn when it arrives.
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The United States are still deep in recession, and while a recovery is expected next year, the strength of the turnaround will depend on export markets and the country’s ability to recover lost production jobs.
Growth prospects: A decline of between 2.5% and 3.5% is predicted during 2009. Growth is expected in 2010, with projections ranging from 3% to 6%.
Worst affected sectors: Automotive, residential and commercial construction.
Outlook: Government stimulus programmes are starting to have a positive impact on the economy, with demand beginning to rise in the biotechnology, pharmaceutical and automotive sectors. The recovery is expected to begin towards the end of 2009, accelerating next year.
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There is a growing feeling that the recession may have bottomed out.
Growth prospects: The UK Government treasury model predicts 1.25% growth in 2010 from a 2009 decline of 3.35%. The IMF predicts 0.6% and the Confederation of British Industry 0.3% in 2010.
Worst affected sectors: Property, retail, automotive, consumer services (restaurants, hotels, etc) and professional services (including legal and accountancy firms).
Outlook: Services and quite possibly manufacturing are expected to lead the recovery. However, sectors reliant on either consumer or government spending are likely to continue to find conditions challenging. The mood among businesses has become more optimistic.
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According to the OECD, Italy’s exports have been hit hard by weak overseas demand. Meanwhile, deteriorating financial conditions continue to undermine investment. As the country’s options are limited by weak public finances, the Government has decided against any significant fiscal stimulus programme, although it has refocused some of its existing spending plans. The economy is expected to remain in recession for most of 2009.
Growth prospects: Gross national product (GNP) is expected to fall 4.9% in 2009, before returning to modest growth in 2010. Confindustria predicts GNP up by only 0.7%.
Worst affected sectors: Automotive, machine tools, construction and financial services.
Outlook: Observers believe that the recovery will be underway by mid-2010.
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The Russian economy slowed down significantly during 2009. This was mainly driven by the fact that oil and other raw materials were hit by a decline in demand in key markets.
Growth prospects: An expected 7.2% decrease in gross domestic product during 2009 was followed by a predicted 2% growth (in line with global economy) in 2010.
Worst affected sectors: Metallurgy, automotive, construction and oil.
Outlook: Oil prices are already on the increase, and this sector, along with fast-moving consumer goods, retail and agribusiness, are expected to lead the recovery in Russia. However, the upturn is not expected to begin in earnest until the second half of 2010.
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India’s economy has continued to grow, but the rate of expansion has slowed down.
Growth prospects: Output is expected to increase by 4% during 2009 (down from 5.5% a year earlier), rising to 7% in 2010, according to World Bank projections.
Worst affected sectors: Exporters have been hardest hit by the global recession. Earlier this year, official figures showed declines of 15%, 21% and 33% in January, February and March respectively. The strengthening rupee is proving to be a problem for exporters. Textiles, IT and outsourcing are also suffering.
Outlook: Infrastructure is expected to lead the recovery. The business community is wary of investment in capital assets, but Indian managers are optimistic about both the global and Indian economies.
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Unlike some of its Asian neighbours, Singapore has seen output contract in 2009, and it is now looking to a global upturn to drive recovery.
Growth prospects: The official 2009 forecast is a decline of between 6% and 9%.
Worst affected sectors: The export sector has seen a contraction of 27% so far this year, while the electronics industry is down 29%.
Outlook: Since Singapore is export driven, recovery is dependent on the global recovery in 2010 and 2011. Meanwhile, the Government is spending on infrastructure projects, such as the MRT Circle line, Sports Hub, LNG Terminal and constructions relating to the Youth Olympic games. The mood of businesses is mixed, with manufacturers and service sector companies continuing to downsize. Local construction businesses are doing quite well.
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Economic growth has continued in China, but the rate has slowed in line with a fall in demand from major export customers, notably the US.
Growth prospects: The Government says a growth rate of 8% for 2009 is achievable. The World Bank recently upgraded its 2009 growth forecast for China from 6.5% to 7.2%.
Worst affected sectors: Exports have seen year-on-year declines of 35% for December, 17.5% for January, 25.7% for February and 26% for May. In May, imports were 25% below their 2008 level for the same month. Property development has also been hit hard.
Outlook: Early this year, the Government announced a US$586 billion stimulus package, focused on infrastructure projects. The mood in the business community is mixed. All eyes are on government stimulus plans.
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Australia has been fortunate compared to many countries throughout the world, in that its economy has so far managed to avoid the worst ravages of the global recession. However, it has not escaped entirely unscathed.
Growth prospects: Gross domestic product is predicted to fall by 5% during 2009. However, a rise of 2.25% in expected in 2010, according to government figures.
Worst affected sectors: Automotive, manufacturing, construction and mining. Housing has been resilient.
Outlook: The worst affected sectors are expected to lead the recovery. Business confidence is currently low, but there is an expectation of growth next year. The biggest risk facing the Australian economy is inflation.
Contributors: Alexander Sirous, Russia; Sam Wholley, North America; Attilio Arietti, Italy; Raghuvir M. Aiyar, India; Don Rankin, Australia; Damian Connellan, China; Daw Ching Foong, Singapore; Mark Harwood, UK