The outlook is cloudy for the global economy, and not even the most celebrated wizards in key economic positions in North and South America, Europe, or Asia know how things will play out over the next year. If you are not paying close attention to economic news because you are one of those who still subscribe to the idea that demand for — and supply of — electronics components and equipment won't be hit by factors extraneous to the industry, please get a second opinion.
The global economy is sinking slowly into turmoil and further uncertainties, with too many flash points, which precludes reasonably acceptable forecasts. Europeans are seething with rage over austerity measures; China is fighting a losing battle against inflationary pressures; Japan is troubled, both by the impacts of the recent earthquake and decades of subpar growth; the United States hasn't been able to put its financial and real estate mess behind it; and growth is highly uncertain and uneven in developing economies.
The bottom line is that there are very few calm economic spots worldwide. Germany, which might qualify, is unhappy it has to help bail out Greece, Ireland, and Spain and is looking to impose stringent conditions on the use of its funds. In the Middle East, several wars are brewing and civil unrest is reshaping the contours of the region, disrupting trade flow and hindering business activities.
The effects of the global malaise are already evident on the equity markets and commodity prices. Crude oil prices have been declining, a sign that traders see weaker demand ahead. Oil prices fell “below $90 a barrel, or more than 5 percent,” according to a report on Thursday following a decision by the International Energy Agency and the US government to dump emergency crude reserves on the market. The IEA said it was concerned about “sagging economies in the US and Europe.”
In the meantime, even the US Federal Reserve Open Market Committee (FOMC) is worried the global economy is not in full recovery mode. A report on iMarketNews.com noted that Fed chairman Ben Bernanke sounded “confounded by the economy” based on comments he made at a conference call after the FOMC released the summary of its deliberations and its decision to leave interest rates on federal funds at 0 to 0.25 percent. Here is how the FOMC tried to justify that decision:
- Information received since the Federal Open Market Committee met in April indicates that the economic recovery is continuing at a moderate pace, though somewhat more slowly than the Committee had expected. Also, recent labor market indicators have been weaker than anticipated.
The Committee continues to anticipate that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate for an extended period.
The Federal Reserve also pared back its growth forecast for the US, dropping this for the second time this year to between 2.7 and 2.9 percent; The prior forecast at the beginning of the year was for growth of 3.4 to 3.9 percent. Little wonder President Obama wants to redirect national resources from war in Afghanistan to nation-building at home.
What does these mean for the electronics industry? First, it will make some industry executives believe they were right in piling up cash and sitting on it rather than spending on new hires, increased R&D, and product development. But merely holding cash because the future is unpredictable is not a winning strategy in a fast-changing industry. The economy will bounce back, and the rough edges will get smoothed away eventually, but only those enterprises that planned ahead, carefully managing resources and the risks in the market, will emerge as winners.
Second, a cooling period can serve as the incubator for future growth. There are economic segments crying for high-tech to lead and champion the adoption and use of new technologies, especially in energy, connectivity, medical, and resource management. This is a great opportunity for an industry that is always searching for the next “killer” application.
The parts are already in place, but someone has to put them all together, and for this you don't need a guaranteed forecast from economists. Anyway, those numbers aren't coming anytime soon, from anyone.