As the saying goes, hindsight is 20-20 and the same can be said about economic predictions. Unfortunately, with the size and global reach of the electronics industry, the economic outlook has become just as important as capacity and competitive forces. Yet, it is more difficult than ever to determine the direction of the global economy and even more difficult to find a reliable source.
The financial industry is typically biased by the bets it has placed, economist are often engrossed in elaborate models that have often proven flawed, the general press picks and chooses only the information that will look sensational, and most industry analysts just avoid the topic all together, which, as an analyst, I have never understood.
As a result, the best anyone can do is weigh all the available data, understand the current concerns, make a conservative evaluation, and be prepared to re-evaluate the situation on a regular basis. Even more important is to not let the daily headlines sway that evaluation too much, especially when major decisions are at stake. Nearly five and a half years after the start of the great recession, the global economy is still reeling from the aftermath and struggling to gain solid footing. As a result, there are almost an equal number of positive signs and negative signs.
The US economy appears to be charging ahead and even the decimated housing industry appears to be showing signs of recovery. Some of the hardest hit areas are charging back at amazing speed as consumers and investors alike rush back into the housing market. Likewise, US consumers are traveling and spending once again.
Whether this is a result from the dearth of spending over the past few years or a positive outlook, consumers are once again spending. Although this spending does fluctuate with many factors including seasonality, employment, and consumer perception, which is often driven by the daily news, consumer spending has remained positive throughout 2011 and 2012.
Being the world’s largest economy, this would normally be great news for the global economy, but there are signs of slowing in both jobs and consumer spending as of late that are concerning. Yet, the US does not seem bound for another recessionary period, just slow and steady growth. The same cannot be said about other regional economies.
Outside the US, many of the largest economies either continue to struggle or show signs of slowing. Of the fast growing BRIC countries (Brazil, Russia, India, and China), only Russia continues to grow at a relatively steady pace. China’s GDP growth continues around eight percent, but this is much slower than previous double-digit growth rates over the past decade.
Japan, on the other hand, has bounced back from the tsunami with increasing growth but also shows signs of slowing. Then there is Europe. Within Europe, the largest economies, France and Germany, have maintained positive but slowing growth rates while many parts of Europe grapple with mounting debt, austerity measures, high unemployment, and negative growth. These problems threaten to pull the entire EU currency block back into recession with little site of a short term path to prosperity.
The problem with watching how people react about the economy is that people act on perceived change - not what is really happening. I am sure many of those Americans who have resumed high consumption cannot afford it but have decided that if they're going bankrupt then they might as well rack up a bit more debt while they can.
Generally, US consumers are fueled by debt. If you lend to them, they will spend be that on housing or consumer goods. Underneath is the US economy really improving or is the debt hole just being dug deeper so that the charade can continue for a few more months?
For other countries that supply to the US economy, this is some extra profit that can made. Wiser countries are, however, seeing this as a short-term windfall.
The US economy is indeed huge. As a huge vessel sinks other close vessels get caught in the whirlpools. Most countries outside the US see what is happening and know that the US debt madness cannot continue forever. Many countries that were wed to US performance are now diversifying and hedging their bets. They want new markets established before the US can no longer raise more cash.
One of the worrying signs is the huge US debt. Sure, some economists may argue that it doesn't really matter as long as the country can service the debt. Still, I know that it would not happy times for me if I maxed out on my credit cards, even if I'd be able to make the minimum repayments.
Join our online Radio Show on Friday 11th July starting at 2:00pm Eastern, when EETimes editor of all things fun and interesting, Max Maxfield, and embedded systems expert, Jack Ganssle, will debate as to just what is, and is not, and embedded system.