Ideal Time for Global Expansion of Trade Shows with Many Global Economies Humming
Oceanside, CA – Unlike the prior two years, this Spring has been relatively free of any major global unrest as we go to press. Moreover, the political rancor over the debt ceiling has quieted down, and fortunately the Boston Marathon terrorists were apprehended quickly. On the economic front, the U.S. appears to be on a slow but steady course. Europe, though falling more into recession, has calmed the fears of a Euro meltdown. The Middle East is as volatile as ever but no governments have been overthrown yet. China is trying to transition from an export-driven economy to one more dependent on domestic growth, and is clamping down on inflation to avoid a U.S.-type real estate bubble. Let’s hope 2013 remains a relatively tranquil year.
Now that we are midway into the year, it is a good time to review the major economies around the world. “The most important trend impacting the global economy is a recent concerted shift by major central banks to inject more liquidity into their country’s economy,” said Frank Chow, chief economist for Trade Show Executive Media Group. “Predictably, each country or region is loosening its monetary spigot at different rates.”
Lessons from Japan’s Economic Bounce
The most dramatic development has occurred in Japan and can serve as a lesson to the U.S. Since Shinzo Abe took the reins as Prime Minister in December 2012, he has embarked on an ultra-aggressive stimulus program to combat over two decades of economic misery. Even the remarkable reconstruction efforts after the devastating earthquake, tsunami and nuclear disaster in 2011 failed to bring Japan out of its doldrums. Prime Minister Abe’s program is built around three pillars: (1) Unlimited quantitative easing to curb deflation and bring inflation to 2%, (2) A fiscal stimulus program which reverses the big tax hike by his predecessor, and (3) Deeper fundamental structural reforms.
Abe’s structural reform initiatives include a major overhaul of the electrical power sector and ending Japan’s entrenched two-tiered structure of discriminating against women in the labor market. Chow said, “Success with these types of reforms, I believe, holds the key to long-term economic vitality for Japan and offers lessons to the U.S. to begin addressing its deep structural issues including three we have highlighted in prior Trending & Spending columns: outmoded infrastructure like the electric and energy grids, excess regulations, and the inadequate skills of American workers.” He cited the latest results in Japan: an unexpectedly robust First Quarter GDP growth rate of 3.5%, the Nikkei market up 36% since Abe took office, the yen declining 24% since last September, and household spending, housing starts, and industrial production all jumping in March. “Japan was trapped by prolonged high unemployment and zero interest rates long before the United States did but is now leading the path to recovery,” Chow said.
The Ripple Effect of a Strong Japan
“The rest of Asia stands to benefit from a revived Japan,” Chow pointed out. “Although China and South Korea are Japan’s export rivals, they have strong trade linkages among them.” China attempted last year to stimulate its economy, but some indicators have softened of late, Chow noted. Export growth has fallen and China’s demand for commodities is slowing. However, wages are rising due to falling numbers of young workers. Many economists believe China’s business cycle is bottoming out and expect economic growth to stabilize as last year's policy easing takes effect with a lag. China still managed an enviable 7.7% GDP growth in the First Quarter.
South Korea is one of the few nations to avoid a recession during the Great Recession. However, its export-driven economy is suffering from the weak global economy, Chow noted. South Korea First Quarter GDP grew 0.9%, its best in two years, but compared to a year ago, it is only 1.5% — the lowest in three years. The central bank provided liquidity in 2012 cutting rates to 2.75%. Then in May, the Bank of Korea lowered the rate to 2.5%, joining global easing from Europe to Australia. The slowing exports and consumer spending prompted the government of new President Park Geun-hye to enact a $15.5 billion stimulus package in April.
Eurozone Continues to Shrink
Europe is struggling through its longest recession since World War II. GDP for the Eurozone contracted (0.2)% in the First Quarter. Economists surveyed by FactSet had expected the euro-zone economy to shrink by (0.1)%. The broader 27-nation European Union (EU) saw its GDP fall (0.1)%. Both regions painted a brighter picture than in the Fourth Quarter, when growth rates regressed (0.6)% and (0.5)% respectively. The data showed Spain and Italy both shrank (0.5)%, while France declined (0.2)%. Germany narrowly avoided a contraction, with the economy growing 0.1%.
The European Central Bank (ECB) has succeeded in calming the markets from the fears of a euro meltdown, but Chow noted that the Cyprus crisis proved that more needs to be done to sever the link between governments and banks, in addition to implementing a fiscal union to complement the monetary one. In the absence of such institutions, and with ongoing public and private sector deleveraging, Chow said most analysts predict the Eurozone economy will shrink for a second consecutive year in 2013. France’s President Francois Hollande recently made a pitch for the 17 countries sharing the euro currency to establish a common government that would meet monthly.
Latin American Strengths
Growth in Latin America and the Caribbean is projected by the IMF to pick up from 3% in 2012 to about 3.5% in 2013, supported by a gradual global recovery, continuation of easy financing conditions, high commodity prices, and ongoing policy easing in some countries. The South American continent alone is expected to do even better, rising 4.5% this year from 3.7% in 2012. Brazil, the region’s largest economy, will rebound from under 1% in 2012 to about 3% this year. Growth in Central America is projected to slow slightly to 3.1% in 2013 with Mexico gaining 3.4%. However, Chow stressed that most countries in these regions are vulnerable to changing conditions in the U.S., Europe, and increasingly China.
Our Neighbor to the North is in Same Slump
Canada’s reputation as one of the strongest nations to survive the Great Recession has tarnished a bit recently. Being a resource-driven economy relying on exports, the unexpected sharp April plunge in gold, silver, copper, oil and other commodity prices has diminished expectations for a better year than last year when a persistent slide in housing markets put a damper on Canada’s economy, Chow said. The economy appeared to perk up in January and February growing 0.3% in both months. However, it is now forecasted to record U.S.-like growth of only 1.5% to 2% in 2013, Chow said.
Cost-Cutting Still on the Agenda of Corporate America
The U.S. economy continues to grow close to its trend of 2%. The Conference Board’s Leading Economic Index bounced back in April with a 0.6% percentage point gain to 95.0 in April after falling a revised 0.2 points in March. Seven of the ten index components expanded, led by housing permits. The U.S. corporate earnings reports for the First Quarter indicate a healthy business environment, Chow pointed out, with most companies’ profits beating expectations. However, the key theme still focuses on cost-cutting, rather than expansion and revenue growth. “As long as the Federal Reserve keeps pumping money into the economy, we can expect the economy to grow,” Chow said.
Fast-Growing Economies Will Be in Africa
Relying on IMF World Economic Outlook data, the fastest-growing economies in 2013 will be located in Africa, led by South Sudan’s 32% GDP growth and Libya’s 20.2%. The slowest are not surprisingly in the EU with Greece’s decline of (4.2)% playing the lead tortoise. Every other region is below 10% growth.
Overall, the global economy does not appear to be as moribund as depicted in many media reports. Mostly, the middling results are driven by massive monetary injection by central banks with the U.S. and Japan leading the way. When the time comes for central banks to taper the quantitative easing, let’s hope enough structural adjustments have been made for economies to grow on their own. In the meantime, it is the ideal time to pursue global partnerships and geo-cloning of your trade shows.
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