Executive Newswire - Regional Newsletter for Middle East

S T A N T O N C H A S E I N T E R N A T I O N A L
End of Global Recession
ISSUE 2
Economists say the US economy will be growing again by next year and lead the way to global
recovery. The end of the recession is in sight, and will be led by the recovery in the US and
China, followed by Europe, leading economists forecast during the World Retail Congress.
> Speaking at this Congress, Mirae Asset chief
global and Asia strategist Ajay Kapur forecast
that the recession would end in the US in the
next “few months”, followed by China.
> Deloitte director of global research
Dr Ira Kalish said that recovery is “all about
the US and China”, which have shared a “symbiotic
relationship” over the past decade. “By
the end of the year or early next year, we will
see the US economy growing again”, said
Kalish. He added that as a result of the downturn
the US will shift from consumer spending
to exports, investments and government
spending, whereas Asia will shift away from
exports towards consumer spending. Kalish
praised countries that had taken strong policy
measures including quantitative easing to
boost confidence, and criticized Europe’s “insufficient”
policy response to the crisis and
lack of strong fiscal stimulus.
comment by
Dr Ira Kalish,
director of consumer business,
Deloitte Research
Retail Week, Issue 2, World Retail
Congress, May 2009
> Meanwhile, Li & Fung managing director
Dr William Fung warned against repeating
history and creating trade barriers – a method
employed in the depression of the late 1920s.
He said: “The only silver lining I see is we are
now operating on unprecedented lower levels
of inventory and trading will be sharper. What
my customers are telling me is keep inventories
low, let’s chase business and have a quick
response.” He said that a consensus was forming,
given the resultant imbalance of power in
favour of buyer over seller, that the idea of payment
within 30 days on open account is “very
prevalent”. However, “once you go past 60
days you are giving the retailer working capital
to finance the product” leading to a lack of
credit in the supply chain, he added. Fung also
said he expected prices to decrease by between
5 and 10 per cent as commodity prices
continue to fall.
Light at the end of the tunnel
In the first few months of 2009, the financial
crisis that began with
the collapse of the US housing
market has deepened
and become a truly global
recession.Economic activity
in the US, Europe and
Japan has declined at an
alarming rate. Emerging
countries have experienced
sharp drops in
economic activity. Even the BRIC
economies, which at one time seemed
relatively immune to the global financial
situation, have experienced serious problems. Global
trade has plummeted, causing concern that the increasingly
global nature of the economy leads to
more rapid transmission of trouble than in the past.
And yet, there are indications of light at the end of the
tunnel. Global shipping rates have stabilized, risk
spreads are far below their level of a few months ago,
and governments have been pumping money into
the system at an unprecedented rate. In the US, housing
turnover and refinancing are accelerating, setting
the stage for a rebound in consumer spending. In
China, a massive fiscal stimulus is fuelling an investment
boom while consumer spending remains surprisingly
strong.
What, then, can be reasonably expected in
the next year and beyond?
(from the Retail Week, Issue 2, of the World Retail Congress, May 2009)
p7
>Toys R Us chairman and chief executive
Jerry Storch said that the “essential” rule by
which retailer should trade through the downturn
was “know thyself”. “We don’t know how
long the recession will last,” he said. “We need
to get back to the basics and get back to common
sense.” He added that he had seen a
“change to cheap” at the expense of quality
and warned against short-termist responses.
>Etam chief executive Richard Simonin said
that the beginning of the end of the “average
customer” had begun before the global
downturn but that recessionary factors had
sped up the evolution. He said that it was essential
for retails to know their customer and
be honest with their teams.
A likely scenario is that the US will experience a revival
of growth by the end of this year. China, which will
not experience a recession but merely a slowdown,
will rebound by late 2009. These two countries can
then lead the world out of recession. Europe and
Japan will rely on renewed US and Chinese demand
for their own recoveries. As the global economy recovers,
oil and other commodity prices will rise,
thereby allowing commodity dependent countries
such as Russia to recover as well.This is merely a likely
scenario, not a firm forecast on which to bet the farm.
Still, the business cycle has not been repealed and recovery
at some point in time is a near certainty.
Moreover, although this is the deepest global downturn
since the Great Depression of the 1930s, policymakers
are reacting far differently than their
predecessors of 80 years ago. Policy-makers in the US,
UK and China have been aggressive in boosting demand.
Thus, there is some cause for optimism. When
the global economy recovers, retailers will face a new
world. The US will no longer be the engine of global
consumer spending growth. Americans will save
more and borrow less. Their spending will be constrained
by their incomes – a novel concept of late.
Instead, US growth will come disproportionately from
exports, investment and government. Meanwhile,
Asian growth will shift away from export dependence
toward growth based on domestic demand.
For the world’s leading retails and their suppliers, a
disproportionate share of future growth will come
from the East. For retails in the US, UK, Sanin and
other countries recovering from housing bubbles,
growth will come from gaining market share rather
than riding a consumer spending boom.