Reading the economic tea leaves
6/26/2012 4:47 PM EDT
Judging trends and growth
One of the main issues is judging trends and growth. When is slow or slowing growth bad? Generally speaking, the financial markets indicate any negative growth trend as an ominous sign. However, all entities, including products, companies, and economies, experience varying rates of growth throughout a lifecycle and slowing growth as they eventually reach a large size relative to the potential market.
In the US, politicians preach higher growth rates to reduce unemployment and increase prosperity, Yet, with a total GDP equal to just over 19 percent of the global GDP, a slower growth rate between 1.5 percent and 2.5 percent may be better for sustained growth than a growth grate between three to four percent.
In addition, slowing growth in an explosive economy like China may avoid the huge bubbles and crashes that have historically plagued other emerging economies. Regrettably, finding a sustainable growth rate is elusive, and finding equilibrium between sustainable and politically or financially acceptable growth is impossible.
At the current time, the slowing growth rates of the BRICs, US, and Japan are concerning but not to the point that they are threatening the global economy. In fact, the slowing growth rates may be beneficial in the long-term. Although many theorize the EU crisis could pull the entire world financial system and economy into another tailspin.
Even with an adequate response to the EU situation, which continues to elude the region’s politicians, the impact of the situation is likely to be felt throughout the rest of this decade with slower growth rates for the region as a whole. However, I would argue that continued growth in the US and emerging economies may offset this threat. Economic growth from emerging regions was vital to overcoming the recession on a global basis and will continue to be essential in stabilizing the global economy in the future.
Another key factor to consider is the current timing. Industries and markets typically take a breather during the northern hemisphere summer. So, judging the outlook for the global economy is even more difficult until consumer and businesses determine their outlook and spending patterns closer to the fall. Unfortunately, these are likely to be influenced by the current press and data, which would indicate that the outlook for spending could be rather pessimistic later this year; once again, pointing to a trend of slower growth through the end of the year.
To see the impact of the economy on the electronics industry, one does not have to look beyond some of the industry leaders. Recent comments or conservative forecasts by the likes of Dell, Cisco, HP and Samsung have rocked the outlooks of financial markets, yet demand for electronics devices and services is still growing and several segments of the market are facing component shortages.
The continued growth, even slow growth, is still good for the electronics industry and results a more stable environment for future investment. So, now is not the time to retrench or panic. If anything, it is a time to prepare for more sustainable growth rates over the next few years.