Wednesday, September 5, 2007

Gartner PCC Summit 2007 (part 3)

Keynote “Has risk disappeared from our world?” (by Alasdair Ross, Director, Wire Services, The Economist Intelligence Unit) at PCC 2007 Summit.

Key points for 2008:
- high growth, higher risks
- US remains the focus of risk
- Emerging market sill in the hot seat
- Beware of swans! (the things you never have seen, expect to see and all of a sudden they’re in front of you - like 9/11)

China tops the growth league (Panda power).

US: uncertainties remain. The US can still tip other economies in the world. Refer to current housing market (will it extend?). However, the rest of the US market is still holding up.
Forecast: 40% chance of US recession, 10% chance it will be deep (confidence level is 60%).

Three issues to keep in mind:
Sub-prime issue
- an issue for US private consumption, for world if US private consumption contracts
Liquidity issue
- central banks can mitigate this - Fed cuts discounts rate, bank pump money into markets
- lessons from Japan (their central bank refused to help and therefore lost a decade of development)
Deleveraging issue (“this is the serious one”)
- asset increase goes into reverse (because people have lost trust)
- margin calls, insolvencies
- central banks powerless

Japan: slower but still healthy.
China
is helping them, because they’re buying Japanese products. Consumers are taking over.

EU: a solid performance, but beware headwinds.

Germany
is taking off again, problems at the Latin periphery (Spain and Italy).

Growth rates: China, India and ASEAN (Thailand, Vietnam, etc) leading the pack. Followed by CIS, Africa, Eastern Europe, Middle East, Latin America, US, Euro zone and Japan.

The ICs (India and China) are hot. But when will it end? Even the Chinese are uncomfortable with the growth rates and are trying to slow things down. Watch for protectionism in China.

W.r.t. India: is their economy overheating? Inflation is above the target. They have capacity constraints.

And the rest of Asia. Indonesia should be one of the BRIC’s (Brasil, Russia, India, China).

What does all this mean?
More trouble ahead?
- US recession?
The great bubble bursts (balance sheet inflation is unsustainable, less liquidity, fewer M&As, less froth)
Oil market shock - short-term risk on the downside (emerging markets are at risk from a downwards commodity correction)

Conclusion: Risk never disappeared, it just went into hiding.

This keynote was set up to help us understand the context of our work and the opportunities this economic context gives us.

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