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  • June 07, 2013 2:12 PM | Deleted user
    It’s hardly news when a U.S. firm moves its manufacturing operations abroad to China. But what about when a Chinese company sets up a factory in the United States?

    That actually happened in January, when Lenovo, a Beijing-based computer maker, opened a new manufacturing line in Whitsett, N.C., to handle assembly of PCs, tablets, workstations and servers.
    The rationale? The company is expanding into the U.S. market and needs the flexibility to assemble units for speedy delivery across the country, says Jay Parker, Lenovo’s president for North America.
    But also undefined and this was crucial undefined the math added up. While it’s still cheaper to build things in China, those famously low Chinese wages have risen in recent years. “We reached the point where we could offset a portion of those labor costs by saving on logistics,” Parker says.

    U.S. firms that have long operated abroad are making similar moves: Caterpillar, GE and Ford are among those that have announced that they’re shifting some manufacturing operations back to the United States. And economists are now debating whether these stories are a blip undefined or whether they signal the beginning of a major renaissances for American manufacturing.

    It’s easy to be skeptical. So far, the effect on jobs has been modest. Since January 2010, the United States has added 520,000 manufacturing jobs undefined and of those, just 50,000 have come from overseas firms moving here, according to the Reshoring Initiative. (That includes 115 in the new Lenovo plant.) That’s a decent number, but it pales beside the 6 million factory jobs that the Bureau of Labor Statistics says vanished between 2000 and 2009.

    And all those reshoring anecdotes might just be that undefined isolated anecdotes. In March, Jan Hatzius of Goldman Sachs pored over the data on U.S. trade and manufacturing and found that the manufacturing gains since 2010 have mainly just been a cyclical bounce-back from the recession and nothing more. “Evidence for a structural renaissance is scant so far,” he wrote.

    Yet the optimists counter that the logic of a manufacturing comeback remains compelling. Besides the shrinking wage gap between China and the United States, the productivity of the American worker keeps rising. Shipping costs are rising, making outsourcing more costly. And the surge in shale gas drilling gives the United States a wealth of cheap domestic energy to bolster industries such as petrochemicals.

    All that could combine to make U.S. factories more competitive in the years ahead, not just with Europe and Japan, but with the manufacturing behemoth in China. This shift likely won’t mean the United States will have 19 million manufacturing workers again, the way it did in the 1980s. For one thing, automation is still a powerful force. And the types of jobs that come back will be very different from the ones that vanished. Still, any significant uptick in domestic manufacturing after a decades-long decline could bolster the economy and spur innovation.

    “I think it’s fair to say this hasn’t all registered in the data just yet,” says Scott Paul, the president of the Alliance for American Manufacturing, in response to Hatzius’ points. “But we’re starting to lay the groundwork where we’ll start to see a real effect three to 10 years from now.”

    Laying the groundwork

    So what does that groundwork look like? For many analysts, the narrowing of the wage gap between China and the United States is the most significant factor. China has been getting wealthier, and its factory workers are demanding ever-higher wages. Whereas the gap in labor costs between the two countries was about $17 per hour in 2006, that could shrink to as little as $7 per hour by 2015, says Dan North, an economist with Euler Hermes, a credit insurer that works with manufacturers.

    “If you’re a U.S. company and the advantage is only $7 per hour, suddenly it may be worth staying home,” North says. “If I stay here, I have lower inventory costs, lower transportation costs. I’m closer to my market, I can have higher-quality production and I can keep my technology.”

    This notion appears to be catching on. In February 2012 survey from the Boston Consulting Group (BCG), 37 percent of U.S. manufacturers with sales above $1 billion said they were considering shifting some production from China to the United States. The factors they pointed to were not only that wages and benefits were rising in China, but the country is also enacting stricter labor laws and experiencing more frequent labor disputes and strikes.

    “Companies are realizing it’s not as easy to do things in China as they thought,” says Hal Sirkin, a senior partner at Boston Consulting Group who has been predicting the convergence of labor costs since 2011.

    The flip side is that American workers are becoming more attractive undefinedfor a mix of reasons. Worker productivity has been rising steadily over the years. But also, BCG says, the decline of U.S. organized labor is luring some multinational corporations home, particularly to the nonunion South. Unions, for their part, have often responded by allowing wages to fall in order to keep jobs in the United States. Ford started bringing back production from China and Mexico after an agreement with the United Auto Workers let the company hire new “second-tier” workers at lower wages.

    As a result, Sirkin’s research at BCG suggests that some industries could slowly migrate back from China. That includes industries such as plastic and rubber, machinery, electrical equipment and computers and electronics.

    Nor is it just China. BCG also found that the United States is on pace to have lower manufacturing costs than Europe and Japan by 2015. Already, companies in those regions have been moving production here. Nissan, Honda, and Toyota are ramping up their exports from the United States. In 2008, Ikea opened a new furniture factory in Danville, Va., to cut shipping costs. The European aerospace company Airbus has just broken ground for a new factory in Mobile, Ala.

    America’s glut of cheap natural gas from shale fracking is also attracting a smaller subset of industries. Factories being built in Texas and Pennsylvania will convert natural gas into ethylene, a key ingredient in plastics and antifreeze. An Egyptian company, Orascom Construction, is building a $1.4 billion fertilizer plant in Iowa near a natural-gas pipeline. (That said, it’s unclear whether cheap natural gas will have any broader impacts beyond a few industries undefined as a recent note from Morgan Stanley points out, energy is still a small fraction of costs for most industries.)

    Most of the evidence that “reshoring” is happening is still very much anecdotal, and there’s a limit to how far it is likely to go. For one thing, North says, the industries most reliant on cheap labor undefined including textiles and mass-produced clothing undefined will likely never return to the United States. Moreover, China has built up a formidable manufacturing infrastructure that will keep many companies there, even as labor costs shift.

    “Chinese suppliers have now developed dense supplier networks that now have their own capabilities for introducing new products,” says Suzanne Berger, a political science professor at the Massachusetts Institute of Technology who studies manufacturing. “And, of course, China is a market that’s growing extremely rapidly undefined so many companies will want to stay in close proximity to those customers.”
    What’s more, several experts noted, the Chinese government may well try to prevent the gap in labor costs from narrowing undefined either by subsidizing domestic firms or through other policies. “I don’t think you want to underestimate the willingness of China to protect its manufacturing,” says Paul. “Even in the face of steep odds.”

    But the early signs are notable. Sirkin points out that his model of labor costs didn’t predict that companies would start coming back to the United States until 2015: “We’ve already seen more movement than we expected.”

    Industry has changed

    Policymakers’ efforts to bolster domestic manufacturing, however, will have to take into account how dramatically the industry has changed since the 1980s.

    In a recent report, an MIT task force described how the U.S. manufacturing landscape is no longer dominated by large firms such as Dupont, IBM and Kodak that could handle every aspect of production themselves. Instead, the future of manufacturing will consist of smaller firms that may not always have enough money to train workers, commercialize new products and procure financing on their own.

    “There are these holes in the ecosystem, and we have to think of another way to provide all these capabilities if we want to see manufacturing revived,” says Berger, a co-author of the report.
    Some firms have partnered with local universities or governments to develop these capabilities, she says. In Rochester, N.Y., for instance, the demise of Kodak meant that there was no longer a dominant company paying to train new skilled workers. So smaller firms in the optics industry banded together to plan new community college curricula and fill the gap.

    In New York, the state government has tried to support semiconductor manufacturing by bringing together private firms, research labs and degree programs to share common facilities, expensive equipment, training and research.

    The Obama administration is spending $1 billion to fund similar hubs around the country. The first is the National Additive Manufacturing Innovative Institute in Youngstown, Ohio, which will focus on the development of 3-D printing and other processes for manufacturing objects from digital models.

    According to the MIT report, such partnerships have the potential to be far more effective than the old model of handing out tax breaks for manufacturers. That’s because they don’t leave a state or locality at the mercy of a single firm that could leave at any time.
    How many jobs will return?

    There’s also the key question of how many jobs are likely to come back. The United States has 11.9 million manufacturing employees, and experts tend to agree we’re unlikely to see a return even to the much-diminished levels of the 1990s, when there were more than 17 million factory positions.

    President Obama has set a more modest goal of 1 million new manufacturing jobs by the end of his second term. But Paul of the Alliance for American Manufacturing says the country is behind pace to achieve even that “reasonable goal.”

    The new manufacturing jobs, meanwhile, will also be different from the jobs of old. For one, many plants are now setting up in the nonunion South, and organized labor has largely been shut out of the manufacturing renaissance. On balance, all of the job gains since 2009 have been nonunion. And, unlike 30 years ago, manufacturing jobs no longer have higher average hourly earnings than the typical private-sector worker.*

    At the same time, technological advances will continue to displace factory jobs in the United States and elsewhere. Germany and China undefined two manufacturing titans undefined are slowly losing positions because of automation. A report last fall by the McKinsey Global Institute found that the price of robots relative to the cost of human labor has fallen 40 to 50 percent since 1990, and that trend is expected to continue.

    Paul, however, points out that Germany has lost jobs at a much slower pace than the United States over the past decade, which suggests that there’s room for improvement. “There’s nothing inevitable about the sort of steep declines we’ve seen here.” Similarly, the recent Morgan Stanley report, which is skeptical about a sustained renaissance, argues that at the very least the United States has halted the “draining away of manufacturing capacity to China.”

    What’s more, experts point out that there are still plenty of other advantages to bringing manufacturing back home. Manufacturing firms tend to spend more on research and development than other businesses, and recent research has focused on the fact that the act of building things can lead to key innovations. Procter & Gamble and Gillette are two companies known for their run-of-the-mill products undefineddiapers and razors undefined that have turned innovations in the manufacturing process into a key part of their business.

    What’s more, the MIT report says, manufacturing can be a potent driver of other service-industry jobs. A small company in Ohio that makes protective sleeves for pipelines, say, will be in a good position to offer technical support for oil platforms and other companies.

    “We have the wrong picture if we think on the one hand there’s manufacturing and on the other hand services,” Berger says. “And the idea that we’re going to just go from one to the other is wrong. Almost all valuable things are some bundle of manufactured goods plus services attached.”

    * Correction: Manufacturing workers no longer have higher average hourly earnings than the typical private sector worker. They do, however, have higher average annual earnings 
  • May 08, 2013 1:02 PM | Deleted user
    Arms Race in Syria (2013-05-29)
    While the civil war in Syria has grown steadily more deadly in recent months, the potential for the level of violence to escalate even further has risen now that more countries are planning to ship arms to the two sides battling for control of that country. On one hand, President Bashar al-Assad’s government has been receiving a steady flow of arms from backers such as Iran and Hezbollah and is now about to receive sophisticated anti-aircraft missiles from Russia. Meanwhile, rebel groups have received significant amounts of arms from Saudi Arabia and Qatar, and the European Union has just lifted its arms embargo on the rebels.

    For the Syrian government, the steady flow of arms from its allies, not to mention its own large stockpiles of weapons, has allowed it to recover from setbacks in 2012 to retake some of the territories that it had lost to the rebels. Moreover, the government has strengthened its grip on what it sees as its core territory stretching from Damascus in the south to the Alawite heartland in the northwest. In the meantime, shipments of advanced missiles from Russia and Iran will allow the Syrian government to deter direct foreign intervention in the conflict while being able to threaten any of its neighbors such as Turkey or Israel, where there have been clashes along their borders with Syria in recent months.

    For the rebels, the European Union’s decision to drop its arms embargo on them is a very welcome sign as there have been many reports which suggested that the rebels’ main backers, Saudi Arabia and Qatar had cut back on arms shipments to the rebels in recent months. However, while the rebels may be able to gain access to more advanced weaponry, there is a growing sense that the rebels are anything but a cohesive group. Furthermore, as Syria’s civil war has dragged on, more radical rebel groups, including some with ties to al-Qaeda, have grown in strength and importance. As a result, a new influx of arms to the rebels could have last repercussions for the security of the entire region.

    Latin America's Ambitious New Trade Bloc (2013-05-28)
    Free trade agreements in Latin America have often failed to live up to their hype, but the new Pacific Alliance may be the region’s trade bloc that transforms trade and investment in Latin America. With a combined population of nearly 220 million people and a total GDP of almost $2 trillion, the Pacific Alliance has the potential to become a serious trade bloc with a global reach. Moreover, each member of the Pacific Alliance has a wealth of natural resources that will continue to attract foreign investors to these countries in the years to come.

    At present, the Pacific Alliance consists of four Latin American countries (Mexico, Colombia, Peru and Chile) that have two things in common. First, all four countries have coastlines on the Pacific Ocean that have enabled them to develop stronger trade ties with the dynamic economies of Asia. Second, all four countries have governments that have opened their economies to trade and investment, enabling them to record some of the highest rates of economic growth in the region. These commonalities have allowed the four member states to set an ambitious agenda for the Pacific Alliance.

    The potential for the Pacific Alliance to transform Latin American trade and investment can be seen in the list of countries that have recently expressed their interest in joining this newest trade bloc. On one hand, the Pacific Alliance is likely to reach trade deals with the United States and Canada in the years ahead, significantly boosting its members trade and investment growth potential. Furthermore, the dynamism of the Pacific Alliance stands in stark contrast to the failures of the region’s other main trade blocs, particularly the increasing leftist Mercosur bloc. Finally, the Pacific Alliance has the potential to transform the political landscape in Latin America by potentially entrenching the deep right-left split in the region’s politics, a development that could see a divergence in economic growth across the region.

    Will the Arab Spring Spread to Algeria? (2013-05-22)
    So far, Algeria has yet to experience the political upheaval that has transformed much of the Middle East and North Africa during the Arab Spring that has taken hold across the region over the past two-and-a-half years. However, questions about the health of long-time President Abdelaziz Bouteflika are raising the possibility of a leadership change in that country in the near future that could result in a struggle for power and a destabilization of the country. Given Algeria’s strategic location, unrest in that country would likely have a major impact upon much of North and West Africa, as well as the Mediterranean region.

    Last month, 76-year-old Algerian President Abdelaziz Bouteflika was reported to have suffered a stroke and has been recovering from this stroke in a hospital in France ever since. His absence from the public eye has led to rumors in Algeria that the president’s health is much worse than is being admitted by the Algerian government and that he may not be able to return to power. As President Bouteflika had been expected to run for a fourth-term in office in next year’s presidential election in Algeria, his health woes are leading to increased speculation as to who could succeed him as president. However, Algerian political power is carefully balanced between the country’s armed forces and intelligence services, with President Bouteflika managing this delicate balance.

    The risks of a political crisis in Algeria are many and involve not only Algeria, but its neighboring regions as well. Internally, a political vacuum at the top could result in a battle for power between Algeria’s rival power centers. Moreover, it could allow the Islamist insurgency that plagued the country in the 1990s to resurface, severely destabilizing the country. Externally, unrest in Algeria could destabilize neighboring Libya and Tunisia, while fueling tensions with Morocco, a country that Algeria has had tense relations with in the past. Finally, unrest in Algeria could allow militant groups to establish bases of power in the vast Sahara Desert in southern Algeria, a development that would have consequences for much of North and West Africa. As such, Algeria and its neighbors will watch the health of President Bouteflika very carefully in the coming weeks.

    Japan Soars at the Expense of its Rivals (2013-05-20)
    Japanese economic growth soared in recent months, in no small part as a result of the economic stimulus programs enacted by Prime Minister Shinzo Abe’s government since it gained power in late 2012. For Japan, this government-led effort to boost economic growth has been the reason for the dramatic improvement in Japan’s export competitiveness in recent months. However, Japan’s improved export competitiveness has had a major negative impact on other export-oriented economies, not only in Asia but also around the world.

    Japan’s economy expanded by 3.5% on an annualized basis in the first quarter of 2013, a performance that exceeded the expectations of Japan’s new government. This followed the introduction of new economic stimulus measures that included major spending programs by the government that were designed to boost domestic spending. Moreover, the government introduced new policies designed to remove Japan from its deflationary trap by allowing the Japanese yen to weaken considerably. This weakened yen has allowed Japanese export competitiveness to improve significantly against most of its trading rivals and this enabled Japan to record strong export growth in early 2013, particularly to the United States.

    While this change in economic policy in Japan has benefited Japan’s domestic economy, it has had a noticeably negative impact on many of Japan’s leading exporting rivals around the world. In Asia, export-oriented economies such as South Korea and Taiwan have seen economic growth rates slow sharply in recent months, due in large part to competition from Japanese exporters. Moreover, Japan’s newfound exporting prowess has had a negative impact on high-end exporters around the world, including in Europe, where fragile economies can ill-afford to deal with a more competitive Japan. As such, Japan’s actions could lead to a new battle for export competitiveness that could, in turn, lead to a full-blown currency war in the months ahead, something that could derail the tepid economic recovery currently underway in most areas of the world.

    Europe's Recession Deepens (2013-05-15)
    More bad economic news emerged from Europe when it was revealed that the region’s recession had worsened in the first quarter of 2013. For the European Union as a whole, GDP contracted by 0.7% on an annualized basis in the first quarter of this year. The news was even worse for the 17-member Eurozone, which saw its GDP shrink by 1.0% in the first three months of the year. For a region whose economic output is smaller today than it was in 2008, this is depressing news, particularly as the economic performances of the world’s leading economies have been much better than Europe’s of late.

    While southern Europe has attracted most of the attention for Europe’s recent economic woes, northern Europe’s economies are also struggling. Germany, which had been the one larger European economy to escape to worst effects of Europe’s economic crisis, recorded a GDP contraction of 0.3% on an annualized basis in the first quarter of this year. Meanwhile, the second largest economy in the Eurozone, France, continued to struggle as its economy once again fell into a recession and appears set for a long period of stagnation. As for the British economy, it managed to record positive economic growth at 0.6% in the first quarter, but this continued a long run of anemic growth rates in the UK.

    In southern Europe, the results were even worse as that region’s economic crisis continued. Italy was one of the few economies in the EU where GDP did not shrink by a larger amount in early 2013 than in late 2012, but its economy still shrank by 2.3% in the first three months of this year. In Spain, GDP shrank by 2.0% and is expected to continue to shrink at an accelerating pace in the coming months as domestic demand has collapsed. Meanwhile, Portugal’s economy shrank by 3.9%, raising the possibility that it will need another bailout from international lenders. In Greece, the economic collapse continued as GDP shrank by 5.3% in the first quarter of this year, although there is some hope that the pace of the economic contraction in Greece will slow this year. Finally, Cyprus’ economy shrank by 4.1% in the first quarter, but this will represent a much better performance than will be seen from that economy over the rest of this year as a banking crisis has devastated the Cypriot economy.

    The International Implications of Pakistan’s Elections (2013-05-14)
    Despite the unrest and uncertainty that preceded them, Pakistan’s parliamentary elections resulted in the outcome that was expected. As most polls predicted, former two-time Prime Minister Nawaz Sharif and his Pakistan Muslim League (PML-N) won a clear victory, putting them in a position to head a new coalition government with Mr. Sharif once again serving as prime minister. Given Pakistan’s fragile nature and its strategic location between India and the Middle East, this election and its result will have major implications for global security.

    Pakistan’s most important international relationship is with its long-time rival India and a government led by Mr. Sharif is expected to push ahead with existing efforts to normalize relations between Pakistan and India. On the economic front, a Sharif-led government is likely to finalize a bi-lateral trade deal with India that could significantly boost Pakistan’s economic prospects at a time when the Pakistani economy is in need of significant help. In terms of security in South Asia, Mr. Sharif avoided going to war with India over the Kargil crisis in 1999 (a move that cost him his job) and he has expressed his desire to improve security relations with Pakistan’s giant neighbor.

    In terms of improving stability and security inside Pakistan, things are less clear. Ominously, the Pakistani Taliban and other militant groups are staunchly opposed to a government led by Mr. Sharif and are likely to continue their campaign of terror across Pakistan. However, it remains to be seen if a Sharif-led government would order the armed forces to carry out a major offensive against the militants, as Mr. Sharif’s relationship with Pakistan’s armed forces is quite strained. This is causing much concern in the United States as it fears that Pakistan’s new government will not do enough to weaken militant groups operating on Pakistani territory. As is always the case, the job of running Pakistan will remain one of the most difficult in the world.

    Where to Invest in Sub-Saharan Africa (2013-05-08)
    While much of the world has realized lower rates of economic growth in recent years, one region, Sub-Saharan Africa, has seen economic growth accelerate. In fact, many economists now see Sub-Saharan Africa as the region that will realize the highest levels of growth in trade and investment in the coming years. Nevertheless, some countries in the region will perform much better than others thanks to their natural resource wealth and their relatively high levels of political stability.

    Over the near-term, countries with newly discovered reserves of oil and gas will drive the Sub-Saharan African economic surge. Among the countries that are in the midst of a flood of foreign investment into their oil and gas industries are Mozambique, Tanzania, Uganda, Namibia and Ghana, none of which was a major oil and gas producer in the past. Moreover, each of these five countries had been recording solid rates of economic growth before they found oil and gas thanks to relatively sound economic policies and improved levels of political stability. If they can use their oil and gas revenues wisely, each of these five countries should head the region’s economic growth table in the coming years.

    In recent decades, most of Sub-Saharan Africa’s economic growth has been generated by the exploitation of the region’s natural resources and little has been done to diversify the region’s economy. However, reforms underway in some areas of the region are leading to a renewed hope that economic diversification is underway in Sub-Saharan Africa. For example, the East African Community (Kenya, Tanzania, Uganda, Rwanda and Burundi) has taken major steps towards the unification of East Africa’s economy, a development that could dramatically boost trade and investment in that region. Meanwhile, investment in East Africa’s infrastructure is also rising sharply, promising to ease trade and investment across that entire region.

    Reprinted from ISA Report published May 8, 2013 (updated June 2, 2013), International Strategic Analysis,  
  • April 05, 2013 1:00 PM | Deleted user
    Global Political Risk Levels Rise (2013-04-10)
    Tensions on the Korean Peninsula, Iran’s nuclear program and a host of other issues are resulting in higher global political risk levels that are threatening to destabilize many areas of the world. Moreover, simmering political disputes in many areas of the world, particularly Asia, have the potential to emerge as major risks to global stability in the months ahead. In addition to the security implications, these rising political risk levels have the potential to derail the tentative economic recovery that is underway in many areas of the world. 

    Over the near-term, the potential for a conflict on the Korean Peninsula or in the Persian Gulf has risen as both North Korea and Iran proceed to push forward with their nuclear programs. While North Korea is currently attracting much of the world’s attention due to its bellicosity, the potential for a full-blown conflict involving Iran remains greater. Another factor that is driving up global political risk levels is the large number of territorial disputes in Asia, many of which involve that region’s leading power, China. As these disputes linger, the potential for clashes between China and its neighbors will rise and this could quickly escalate into a wider conflict that will destabilize that vital region.

    Even if these potential conflicts are avoided (and we forecast that none of these potential conflicts will erupt over the next six months), the fact that they have led to rising political tensions is having a noticeable impact on the global economy. Most importantly, these tensions are damaging business and investor confidence levels in many key economies. Furthermore, the greatest risks at present are located at the heart of two of the world’s most economically influential regions (East Asia and the Middle East). As we have seen in the Middle East and in southern Europe, economic and political risk levels are often correlated and can drive one another upwards to very dangerous levels and here lies the greatest risk at present.

    Will Shinzo Abe Save Japan? (2013-04-09)
    For the past two decades, Japan has been mired in an economic slump that has brought deflation and stagnation to what was once the world’s most dynamic developed economy. Moreover, Japan’s plight has led many economists to conclude that other aging developed economies such as Europe were bound to suffer the same fate as the Japanese economy. However, under new Prime Minister Shinzo Abe, the Japanese government is undertaking a series of significant policy shifts for Japanese economy that might just revive the world’s third-largest economy and offer hope to other aging developed economies around the world.

    Since taking office in December 2012, Prime Minister Abe and his Liberal Democratic-led government have undertaken a number of steps designed to bring an end to Japan’s two-decade slump. First, the government, together with the Bank of Japan, has raised the country’s inflation target to 2% while forcing down the value of the yen. This has helped to significantly improve Japan’s export competitiveness that has been eroded by competitors in Asia over the past two decades. Meanwhile, the government has introduced a series of massive economic stimulus programs designed to boost domestic spending at a time when the domestic market has continued to shrink as Japan’s population declines and as deflationary pressures have persisted.

    It remains to be seen if these policies will raise the average Japanese economic growth rate to 2% as the government hopes, but there is little question that without these moves, Japan’s long-term decline would continue. While these policies may boost domestic demand over the short-term, Japan’s continued demographic decline will make it difficult to sustain domestic demand growth over a longer period. As for exports, Japan’s export competiveness looks set to improve over the near-term, but international competition will remain fierce. Moreover, tense relations with China could stymie growth in what has been the fastest-growing market for Japanese exports in recent years. Nevertheless, Japan, unlike Eurozone economies, has control over its monetary policy and this has given Japan a ray of hope, at least over the near-term.

    Could Oil Prices Soar in 2013? (2013-04-03)
    Oil prices have remained relatively stable over the past two years, albeit at a level that is well above the average of the previous three decades. This stability followed a period of extreme volatility that saw oil prices reach a record high in the 2008 before they plummeted in the wake of the global economic crisis later that year. Oil prices rose again from the second half of 2010 to early 2011, and since then, have remained near current levels. While there is increasing speculation that oil prices could be set for a sharp fall, there is also a considerable chance that oil prices are on the verge of another major upturn.

    There are a number of factors in place this year that suggest that there is a real possibility of a 25% or more increase in oil prices in the coming months. First, the potential for shocks in key oil producing areas (most notably in Iran and its neighbors) remains high as the potential for a conflict over Iran’s nuclear program remains in place. Second, oil demand that has been weakened by the downturn in Asia last year is set to increase significantly as economic growth in China, India and many other Asian economies increases. This is important as it was soaring demand in Asia that was the single largest reason for the 170% increase in oil prices from early 2007 until mid-2008.

    For some economists, the recent shale gas and oil boom in the United States and the expansion of deep water drilling around the world are leading to expectations that oil prices will trend downwards over the long-term. However, we believe that growth in demand for oil (particularly in Asia, but also in other emerging markets) will significantly exceed the increase in oil output over the coming decade. The dramatic expansion of the transportation industry in China, India, Indonesia and other large emerging markets is forecast to lead to a massive increase in global oil demand in the coming years. As such, we believe that oil prices are likely to reach $200 a barrel or more before the end of this decade. For the oil industry and oil-producing countries, this will prove to be a major boost for growth, but for energy-poor countries, this will prove to be a major drag on their economies.

    Is North Korea a Real Threat? (2013-04-02)
    North Korea could not have had a doubt that the international community would place new sanctions on it when it decided to carry out its third nuclear test earlier this year. After all, not only had the United States warned North Korea not to proceed with this test, but so had its closest ally, China. Nevertheless, when the United Nations Security Council imposed tough new sanctions against North Korea last month, it responded with some of the harshest threats against the United States, South Korea and Japan that it had ever issued, raising tensions in Northeast Asia to their highest level in recent years.

    Despite the fact that North Korea has increased its threats against its perceived enemies and placed its armed forces on high alert, the threat of a major attack by North Korea against South Korea or the United States remains small. For one, the gap in military power between South Korea and North Korea has widened considerably in recent years, while South Korea’s US ally has a level of military power that dwarves that of North Korea. Moreover, the United States has vowed to come to the defense of South Korea against any provocation from North Korea, no matter how small. This should be enough to deter Pyongyang from taking any steps that could lead to a war on the Korean Peninsula that it could not win.

    Nevertheless, with tensions having risen so far and with the armed forces of North Korea, South Korea and the United States on high alert, the potential for a clash on the Korean Peninsula remains in place. For example, some experts believe that North Korea’s radical behavior in recent weeks is the sign of a power struggle among North Korea’s elite and this could lead to some act of provocation by North Korea’s armed forces, triggering a larger conflict. Moreover, North Korea sank a South Korean naval vessel and shelled a South Korean island back in 2010, highlighting the fact that it is prepared to prick its more powerful neighbor at any time. If decides to act in such a manner this time, however, it could find itself up against a much more powerful force that will not hesitate to strike back.

    Mixed Signals from Latin America (2013-03-26)
    Over the past year, there has been a sizeable divergence in the economic performance of Latin America’s leading economies. Moreover, there is a growing divergence in the economic competitiveness of that region’s economies and this will have major implications for the future of Latin America. While some countries in the region appear destined to record mediocre rates of economic growth in the coming years, other Latin American economies could be on the verge of a major increase in economic growth rates.

    Over the past year, many of Latin America’s leading economies have suffered from major slowdowns or from a sharp increase in their level of economic risk. For example, Brazil has experienced a sharp decline in its economic competitiveness and this has led to major problems for that country’s manufacturing sector and has resulted in a very disappointing economic performance over the past year. Other sizeable economies such as Argentina and Venezuela have suffered from severe economic mismanagement that is leading to soaring rates of inflation and the potential for a long-term loss of economic competitiveness.

    In contrast, some Latin American economies are making major strides and are likely to experience strong rates of economic growth in the years ahead. For example, the resource-rich countries along South America’s Pacific Coast such as Peru and Chile have experienced strong rates of growth thanks to rising export demand in Asia, but also because of sound economic policies in recent years. Meanwhile, the region’s second-largest economy, Mexico, has taken great strides in improving its export competitiveness and this should allow for Mexico to experience a long period of solid economic growth. These economies should serve as a strong example to the rest of the region as to what can be done if a country takes the steps needed to boost its economic competitiveness.

    The World's Most Unstable Region (2013-03-25)
    While other regions such as the Middle East and Central Asia attract more attention from the international media, there is no region in the world that is more unstable now than Africa’s Sahel and the region to its immediate south. From Senegal in the West to Eritrea in the East, this long and arid region is home to numerous conflicts that are destabilizing more than a dozen countries across the north and the center of Africa. Moreover, this region is now home to some of the world’s most dangerous militants that, while still small and limited in their capability to carry out large attacks, are nevertheless an increasing threat to global stability.

    A number of factors have combined to make the Sahel and its surroundings such an unstable region. First, the vast size of the region and the fact that it is so sparsely populated have resulted in a huge region in which outside powers struggle to maintain their authority. Second, rising populations and dwindling water and food resources have led to clashes between rival groups throughout the region. Finally, the civil war in Libya and the collapse of the Qaddafi regime resulted in a major inflow of arms into the Sahel as mercenaries from the region that had worked for the Qaddafi government returned home flush with weapons. As a result, the region is now facing a series of wars and insurgencies that are proving difficult to manage.

    The most prominent conflict in the region has been the war in Mali that prompted French and African intervention to force Islamist militants out of their strongholds in northern Mali. The most deadly conflicts in the region have been found in the East, involving Eritrea and Ethiopia, as well as Sudan and South Sudan. In recent months, major unrest has broken out in northern Nigeria, while rebels have recently ousted the government of the Central African Republic. Altogether, there is little chance for improved stability in the Sahel as long as population growth continues and resources dwindle and this will allow for both local and international militant groups to expand their presence in this vast region.

    Reprinted from ISA Report published April 5, 2013 (updated April 10, 2013), International Strategic Analysis,  
  • March 06, 2013 12:01 PM | Deleted user
    Event Marks 12th Gathering Commemorating Women’s Leadership and Achievements

    Chicago, IL undefined March 4, 2013 undefined More than 350 of Chicago’s most influential women will meet in celebration of International Women’s Day (IWD) on March 8 at the Union League Club. The meeting will be the 12th consecutive gathering in Chicago to commemorate the international holiday that dates back to 1909.

    This year’s keynote speaker is Ellen Costello, President and CEO, BMO Financial Corporation.

    “Over the past 100 years, the pace of change we have realized has continued to accelerate, including a global economy which touches everyone today,” said Ellen Costello. “It’s important to acknowledge the progress that has been made in diversity and inclusion, while also knowing a lot of work remains.”

    The program will be moderated by award-winning journalist Robyne Robinson and Illinois Attorney General Lisa Madigan will highlight this year’s 100th anniversary of women voting in Illinois.

    Each year the International Trade Club of Chicago (ITCC) and World Chicago (WC) host a luncheon and international trade fair at the Union League Club in order to highlight the achievements of Chicago’s local educational, political and corporate leaders. The event is one of many international gatherings that draw attention to the global progress on issues of equality and women’s rights.

    “The International Trade Club is pleased to be hosting this event in collaboration with World Chicago and the Union League Club,” said ITCC board chair Sidney Salvadori, “International Women’s Day has become one of our most popular events and we take pride in the work we do to highlight a few of the many successful women leaders in the Chicago region.”

    The tradition of International Women’s Day dates back to the early 1900s when labor movements in both Europe and North America led to substantial change in women’s rights and roles in modern society. As of 2013, International Women’s Day is an official holiday in over 25 countries and was first recognized by the UN during International Women’s Year in 1975.

    According to Nancy Sasamoto, Managing Director of Professional Development at Masuda Funai, event partner, “Supporting the ITCC’s [and WC’s] International Women’s Day event is a wonderful opportunity to celebrate the economic, political and social achievements of women locally and throughout the world.”

    This year’s UN theme is: “A promise is a promise: Time for action to end violence against women.”

    The Chicago Celebrates International Women’s Day fair and luncheon will be held from 10:30 a.m. until 1:30 p.m. at the Union League Club of Chicago. The price for an individual ticket is $65 and includes admission to the fair and lunch. For more information and to register, please visit: 

    The ITCC is a not-for-profit trade association based in Chicago, Illinois. Founded in 1919, the ITCC is the oldest international trade association in the United States. Members represent a broad range of manufacturing, technology and service sectors, as well as educational institutions, government agencies, and the diplomatic corps.

    WorldChicago,501(c) non-profit organization, provides the local community with a unique opportunity to build business relationships and lasting friendships with visitors from around the world. WorldChicago hosts events, programs and meetings for over 1000 international delegates each year.

    Media interested in covering the event or interviewing partners, sponsors, or speakers, please contact:

    Logan O’Grady
    ITCC Public Affairs Coordinator
    : 715-821-2113
  • February 27, 2013 11:46 AM | Deleted user
    A big, youthful population should promise growth, but political instability holds the Nile nation back

    Where there are political upheaval, risk and uncertainty, there are opportunities worth grasping. This may well be the thinking that Egypt’s President Mohammed Morsi will be clinging to as he beats a trail east and west to drum up much needed foreign direct investment (FDI). Since 2008/9, FDI in Egypt has slumped from $8.1bn to $2.1bn in 2011/12 and the country’s near-term macroeconomic stability depends on securing IMF assistance.

    “The situation in Egypt is pretty dramatic and political uncertainty is proving a distraction both internally and for foreign investors,” says New York-based Matthew Miller, a senior associate specializing in the Middle East and North Africa for Frontier Advisory, a research and strategy firm that advises companies entering emerging markets. “The government is really finding it difficult to create the right conditions necessary for macroeconomic stability.”

    The government’s 10-year development plan carves out ambitious targets including growth of 3.5% this year, rising to 7.5% by 2016/17 and 9.8% by 2021/22. But with deep polarization in the country’s body politic, the socioeconomic time bomb of a 13% unemployment rate, a perception of corruption at the heart of government as well as regulatory uncertainty, there is a big question hanging over Egypt. Where is growth going to come from?

    So far, much of the foreign investor interest is coming from Arab countries – like Qatar, Kuwait and Turkey – that are sympathetic to President Morsi’s conservative Islamist government. To help Egypt fight its currency crisis, Qatar recently granted a $2bn loan to Egypt, in addition to a $500m grant. Turkey delivered the first tranche of a $1bn loan in December, with the balance arriving in January this year. Not all countries in the region have been so forthcoming; Saudi Arabia and the United Arab Emirates undefined which has locked horns with the Muslim Brotherhood undefined are taking a more cautious approach.

    Whether the investments from the Arab world are a show of political support or truly commercial in nature, Egypt is a long way from reaching earlier growth highs of more than 7% per year. Talks to secure the badly needed $4.8bn loan from the IMF, which have been subject to several delays, now appear to be back on track, and a successful conclusion will be essential to the country’s near-term macroeconomic stability and future growth trajectory.

    Beyond the current turmoil: The long-term fundamentals

    In the current politically unpredictable environment, many potential investors are staying on the sidelines. However, as Charles Hollis, managing director in FTI Consulting’s Global Risk and Investigations team notes, while short-term political uncertainty is putting a damper on things, “Egypt’s fundamentals are not entirely bleak.” With 85 million people, Egypt is the most populous country in the Arab world, 60% of the population is under 30, and they speak the same language as the countries across the Middle East and North Africa.

    These are among the reasons that multinationals with entrenched interests in Egypt – like Marks & Spencer, Vodafone and Shell – seem willing to ride through short-term disruption. In the past few months, other firms have given Egypt a vote of confidence. In September 2012 the South Korean electronics firm Samsung said it would spend $280m on a new factory in Egypt; this will begin operations in the first half of 2013. A month later France Telecom acquired the mobile service contract from its Egyptian partner, Orascom Telecom Media and Technology, for $142.3m. Mobile penetration is 100% and the competition is fierce, but this shows commitment to the region from the French telco. And Egypt was one of three destinations earmarked for a new factory for the French cosmetics firm, L’Oreal.

    Egypt has natural resources including oil and gas and a diversified and competitive manufacturing sector. With 9% of the world’s trade passing through the Suez Canal, it is strategically placed. In fact, talks are under way for an ambitious plan to develop a Suez Canal Axis, which could boost a range of industries from manufacturing to technology and tourism. (Aside from significant political will and investment, this will require a resolution to the state of emergency that has been declared in three cities in the region.)

    Arabs buy into banking; North Americans into real estate

    Banking is one sector that is attracting substantial interest from Arab players, even as cash-strapped European banks look to exit Egypt. Given that around 90% of the country’s population still relies on cash payments, there are opportunities to provide niche financial products and services. No new banking licenses have been issued in Egypt since 2004, when banking-sector reforms were introduced. There is growing speculation that this could change.

    Mr. Hollis, however, warns that given lack of transparency and no clear arbitration and dispute resolution procedures, there is a great deal of uncertainty around whether the terms of new or existing contracts will be honored. For the time being, banks in the Arab world may be the prime takers, but their interest is an indication that the market is seen as profitable. Egypt’s central bank recently approved a request by Qatar National Bank to acquire a majority stake in Egypt’s National Societe Generale Bank and National Bank of Dubai will acquire French bank, BNP Paribas Egypt.

    If foreign firms outside the Arab world are holding off investing in the financial sector, they are getting involved in areas that are feeling the benefits of its growth. Closely linked to a recovery in the banking sector is real estate. U.S. construction risk management firm, Hills International, recently won a $1.5m contract from the Saudi Egyptian Construction Company to oversee the construction of the Secon Nile Towers over a three-year period. The development will feature two 23-story buildings: one five-star hotel tower and one residential and retail tower. Hills’ Cairo-based marketing specialist Ahmed Thabet says that despite recent political turmoil, the company remains optimistic about future opportunities in Egypt. “Things are getting back to normal and the real estate sector will boom again because there is always going to be demand for both residential and commercial properties,” he says. Hills also won the contract to manage the renovation and redevelopment of the Nile Ritz Carlton Hotel in Cairo.

    From the markets of Cairo to Nile cruises, the pyramids and the beaches of the Sinai Peninsula, tourism has always been an important earner for Egypt’s economy, but its potential has never been fully realized. The revolution did little to help, but the government has now set a target of doubling tourist arrivals to 30m by 2020. There are challenges like combating the threat of domestic terrorism from Al-Qaida and instability in the Sinai. Yet developments like Secon Nile Towers indicate that tourism is not dead. According to Robert Repsher, chief financial officer of U.S. tour operator Sunnyland Tours, “Egypt is a gold mine for investors with foresight.”

    Positive rumblings, perhaps, but with a Fitch downgrading from B+ to B, Egypt is now on a par with Lebanon, Cameroon and Rwanda. To secure much-needed FDI, the country now needs a stable and business-friendly environment. Parliamentary elections scheduled for April this year may, or may not, provide some clarity. Until then, however, it won’t come as any surprise that most investors will be waiting and watching.

    Reprinted from EIU article published February 27, 2013 posted at Business without Borders website. To view article, go to
  • February 26, 2013 11:59 AM | Deleted user
    The Challenges Facing China's New President (2013-03-20)
    Xi Jinping has officially become China’s new president and as he prepares to lead to the world’s most-populous country for the next ten years, he will find that he faces a myriad of challenges that threaten China’s rise to superpower status. As the head of a government focused on maintaining its grip on power, it will be the internal challenges facing President Xi that will garner the most of his attention. However, as China’s global power and influence continue to grow, a rising number of external challenges will force President Xi to look beyond China’s borders more than any other previous president in China.

    Of the large number of internal challenges facing President Xi, three stand out as major threats to China’s future. First and foremost, China is facing unprecedented long-term environmental challenges that include widespread pollution, water shortages and resource depletion. Second, the threat of internal instability remains high as evidenced by the unrest in areas such as Tibet and Xinjiang and the growing resentment for China’s widening wealth inequality. Finally, President Xi will be the first Chinese president in recent decades that will not preside over an economy that is consistently growing by more than 10% per year and the president will have to be sure that this slowdown does not become a hard landing for the world’s second largest economy.

    For decades, Chinese leaders focused on China’s internal issues as the country rose from third-world status to one of the world’s most powerful economies. However, this rise has resulted in China’s greater engagement with the world at large, giving rise to new challenges facing the country’s leaders. For example, the ongoing territorial disputes in the waters of East Asia and Southeast Asia are raising tensions between China and many of its neighbors, while the situation on the Korean Peninsula remains as volatile as ever. Further abroad, China’s fast-growing economy is becoming ever more reliant upon energy and other natural resources from around the world and this is forcing China to take steps to protect its access to these resources. Of course, managing relations with the world’s other superpower, the United States, will also be a top priority for President Xi.

    The Cyprus Fiasco (2013-03-19)
    Cyprus became the fifth Eurozone country to receive a bailout from international lenders and in doing so; this tiny country of just 840,000 is at the center of situation that could reawaken Europe’s debt crisis. This is because the terms of the bailout that were imposed on Cyprus by Eurozone member states (most notably Germany) are so draconian that they are certain to severely dent confidence in banks in the more at-risk countries of the Eurozone. As we have seen the Eurozone’s economy and financial system are so fragile at the moment that even the smallest of countries can cause major disruptions to the European economy.

    That Cyprus was in line to receive an international bailout was long expected due to the poor health of the country’s banking sector that had grown much too large and was over-exposed to the devastated Greek economy. What was a surprise was the fact that, as a condition to receive the 10 billion euro ($12.9 billion) bailout, the Cypriot government would impose a one-off levy on all bank deposits held in Cyprus. There had been rumors that larger bank deposits (many of which are held by Russians) would be subject to this tax, but the announcement that smaller bank deposits would also be subject to a one-off 6.75% tax was a surprise and led to angry Cypriots attempting to pull their money out of their accounts, a move that forced the government to close all banks for nearly a week.

    The mishandling of this bailout for Cyprus is likely to have major repercussions for the entire Eurozone. First, the terms of this bailout deal have done more to lessen confidence in the banking sectors of weaker Eurozone economies than just about any other event over the past few years. Second, this deal will raise questions about future bailouts in the Eurozone that may be required (such as in Slovenia) and whether or not bank account holders there will also be subject to such a tax. Finally, the reluctance of the Eurozone to use the tools it has at hand to deal with such a crisis (such as the European Stability Mechanism) will reduce confidence in these tools over the longer-run. For a region in the midst of a recession, this blow to the region’s confidence can only make matters worse.

    Disappointing India (2013-03-13)
    India’s economic slowdown continued to worsen in recent months, with economic growth levels falling further behind not only those of China, but also those of other larger emerging markets in Asia. Moreover, India’s slowdown is due largely to internal factors as its exposure to weak export markets in Europe and parts of Asia is less than that of most other emerging markets. This should focus the Indian government’s attention on the need to enact serious economic reforms that will boost India’s economic competitiveness and increase the level of domestic demand inside India.

    Indian GDP growth slowed to just 4.5% on an annualized basis in the fourth quarter of 2012, the lowest rate of economic growth in India in ten years. This slowdown was once again attributed to weaker levels of domestic demand and the continued struggles of the country’s manufacturing and agricultural sectors. Even India’s powerful services sector weakened over the course of last year, depriving India of its main pillar of economic growth prior to the recent slowdown. Meanwhile, persistent inflationary pressures continued to damage India’s domestic market as the Indian government has failed in its efforts to bring inflation under control.

    In order to revive India’s economy and allow it to approach Chinese levels of growth, the Indian government needs to take a number of key steps. First, the government desperately needs to make massive investments in the country’s infrastructure and power grid in order to remove the bottlenecks that have severely reduced India’s economic competitiveness. Second, it needs to take greater steps to bring inflation under control, although the soaring demand for food and energy in India is likely to make this a most difficult task. Finally, the government must push through needed reforms that will help India to attract more foreign investment that can develop export-oriented industries that can drive Indian economic growth in the coming years.

    North Korea Threatens Again (2013-03-12)
    In the wake of the latest round of international sanctions that were imposed on it by the United Nations Security Council, North Korea has stepped up its rhetoric by breaking a number of pacts with South Korea and threatening to go to war with South Korea and the United States. While this is certainly not the first time that Pyongyang has issued such threats, they nevertheless add to the rising level of instability in East Asia. Moreover, they have revealed deep divisions within the leadership in North Korea that pit those in favor of political and economic reforms against much of the country’s armed forces.

    It came as no surprise that the international community imposed new sanctions on North Korea following that country’s latest nuclear test last month. It was also no surprise that North Korea’s closest ally, China, backed these sanctions as Beijing had unequivocally warned North Korea against proceeding with this test. In response to these sanctions, North Korea announced that it would end its armistice with South Korea and end all non-aggression pacts with its neighbor to the south. Moreover, it warned that it could strike cities in South Korea, Japan or the United States with its nuclear weapons, although it does not yet possess the capability to do so.

    Of particular concern to North Korea should be the fact that China has backed these latest sanctions against Pyongyang in response to its latest nuclear test. This could lead to Beijing lending more support to reform-minded leaders within the North Korean government, including the country’s young leader Kim Jung-un. However, efforts to enact more political and economic reforms in North Korea have generated strong opposition from some quarters, none more important that the country’s vast armed forces. This is due to the fact that the armed forces control much of the North Korean economy and enjoy tremendous political power, both of which would certainly come to an end should the pace of reform accelerate and North Korea open up to the outside world.

    The Death of Hugo Chavez and the Future of Venezuela (2013-03-06)
    After a near-two-year battle with cancer that forced him to undergo four surgeries and months of chemotherapy, Venezuelan President Hugo Chavez finally succumbed to his illness and died at the age of 58. His death means that early presidential elections will have to take place in Venezuela in the coming weeks, just months after President Chavez was re-elected for a fourth term in office. Moreover, his death comes at a time when Venezuela remains deeply divided, with the deceased president’s supporters in the government and the armed forces showing little inclination to be willing to give up power should voters turn against them.

    President Chavez’s legacy is mixed, but there is no question that he was the dominant politician in South America’s swing to the political left over the past 15 years. With his backing, leftist governments took power in a number of countries in the region, including Ecuador and Bolivia. On the positive side, he played a major role in promoting Latin American unity, while enacting a series of social welfare programs designed to improve the livelihoods of the poorest Venezuelans. On the other hand, President Chavez’s mismanagement of the Venezuelan economy severely damaged that country’s vital oil industry while fuelling persistent high rates of inflation that are leading to shortages of many goods and are threatening to destabilize the country.

    With President Chavez now dead, a new presidential election will have to take place in Venezuela within the next month. This election will most likely pit President Chavez’s chosen successor, Vice President Nicolas Maduro, against the man he defeated in October 2012’s presidential election, opposition leader Henrique Capriles. Given the popular support for the “Bolivarian Revolution” among poorer Venezuelans, Vice President Maduro is likely to win the presidency. However, it remains to be seen if Venezuela’s political left can remain united without the man who dominated it for the past two decades. If the left fractures, there is a strong chance that the political right can eventually retake power in Venezuela, a development that could lead to major unrest there.

    What's Wrong With Brazil? (2013-03-05)
    Until recently, Brazil was being touted as the next giant emerging market to realize a major economic boom. This was due to a major increase in economic growth rates in Brazil which led to the expansion of Brazil’s middle class, giving the country what it hoped was a new bedrock of economic stability. Moreover, massive offshore oil and gas discoveries raised hopes that Brazil would become a major energy exporter in the near future. Unfortunately for Brazil, economic growth rates plummeted over the last two years and the country’s longer-term economic health has been called into question.

    While Brazil’s economy did rebound slightly in late 2012 from its sharp decline earlier last year, its level of growth remained well below that of all other major emerging markets. Economic growth accelerated in the fourth quarter of 2012 to 1.4% on an annualized basis, bringing the total year’s growth rate for 2012 to just 0.9%. For Brazil, this was a bitter blow, as the government had forecast 2012’s GDP growth rate to be 4.5%. However, Brazil succumbed to the same problem that has plagued many other economies in recent years, a deterioration in export competitiveness.

    Over the near-term, this decline in Brazil’s export competitiveness is likely to keep Brazil’s economy from returning to pre-crisis growth levels. This lack of export competitiveness has resulted in a flood of imported goods into Brazil in recent years from competitors such as China and Mexico and this has severely damaged Brazil’s manufacturing sector. In order to improve Brazil’s longer-term outlook, its government will need to dramatically improve the country’s infrastructure in order to reduce exporting costs, while raising productivity levels substantially. If these goals can be achieved, and if the country’s energy sector grows as is hoped, Brazil can still become a dynamic emerging market in the long-term.

    The World's Leading Growth Markets for Exports (2013-02-27)
    While the world’s leading markets for exports remain the world’s largest developed economies in North America, Europe and East Asia, exports to a number of key emerging markets are rising at a much faster pace. Moreover, long-term trends indicate that emerging markets will continue to account for an increasing share of the growth for exporters in the years ahead, presenting a number of challenges for exporters. The key to success for exporters in the coming years will be their ability to identify which export markets provide the best growth opportunities for their goods and services.

    In the developed world, North America remains the world’s largest export market, with the United States and Canada importing nearly $3 trillion in goods last year. Moreover, these two export markets are forecast to grow at a faster pace than most other developed economies in the years ahead. The European Union is the world second-largest export market, with the EU importing $2.2 trillion in goods last year from outside of the EU. However, many European export markets will struggle to grow due to the region’s economic crisis and the longer-term outlook is not very favorable. Finally, the developed economies of the Asia-Pacific region imported around $2.0 trillion in goods last year, but, apart from Australia, growth is forecast to slow over the longer-term.

    Higher rates of growth can be found in export markets in the developing world. For example, China’s importing of goods has risen by nearly 700% of the past decade and now stands at nearly $2.0 trillion. In fact, China will surpass the US to become the world’s leading importer within the next two to four years. The vast Middle East and Africa region has also recorded a large increase in imports over the past decade, with this region having imported nearly $1.4 trillion in goods last year, led by the UAE, Saudi Arabia and South Africa. Finally, large emerging markets such as India, Indonesia and Brazil are beginning to emerge as major export markets as well, although none of these countries has yet to meet their full potential and will not do so until their domestic markets mature.

    The Impact of Italy's Political Deadlock (2013-02-26)
    Voters in many countries have turned against their politicians in recent years, but few to the degree as those in Italy. This was evident in Italy’s parliamentary elections that have resulted in what economists feared most, a deadlocked political system. With no party or coalition immediately able to form a new government, Italy’s fragile economy is likely to be buffeted by rising bond yields and a sharp fall in business, consumer and investor confidence. Moreover, the fact that Italy is the largest economy in southern Europe means that Italy’s political situation has the potential to rekindle Europe’s debt crisis at a time when most of Europe remains in a recession.

    While many experts warned that Italy’s parliamentary elections could result in political gridlock, the actual results were nevertheless a surprise to many. As expected, Pier Luigi Bersani’s center-left coalition won control of the lower house of the Italian parliament. However, the center-left coalition was barely able to edge out Silvio Berlusconi’s center-right coalition in the voting and was unable to secure a majority of the seats in Italy’s powerful Senate. Meanwhile, the Five Star Movement led by comedian Beppe Grillo scored a major success by finishing in third place and winning one-quarter of the vote. As Mr. Grillo has stated that he will not work with either of the two main coalitions, a weak government with a minority of the seats in the Senate can be formed or new elections will have to take place.

    The overall message of this election was that Italian voters were both fed up with their traditional political leaders as well as with the austerity measures that were enacted by the government of Prime Minister Mario Monti, who’s centrist coalition won just 10.6% of the vote. For Italy, this means that the economic reforms that are needed to revive the moribund Italian economy are unlikely to continue as voters have clearly rejected them. For Europe, this means that the hopes that the debt portion of the region’s economic crisis were in the past have been dashed, as Italy’s political uncertainty is spooking investors at a time when other economies such as Greece, Spain, Cyprus and Slovenia and all facing the potential for needing a bailout from international lenders.

    Reprinted from ISA Report published February 26, 2013 (updated March 19, 2013), International Strategic Analysis,  
  • February 20, 2013 11:41 AM | Deleted user

    The end of cheap Asia is approaching, albeit gradually. That means meaningful numbers of outsourced manufacturing jobs are beginning the long march back to the U.S. 

    Until recently, exports from Asia have helped Western consumers enjoy lower prices, and multinationals, higher profits. At the same time, a rapid manufacturing buildup has helped Asia catch up to the West, while lifting the region’s vast pool of young workers out of poverty. 

    HSBC’s Julia Wang argues that this source of prosperity, built on East Asia’s demographic dividend and its integration into the global production chain, was always going to end. But it is probably ending earlier than many expected. 

    China’s working-age population peaked last year, marking the end of a major mobilization of China’s labor surplus into the global economy over the last three decades . 

    In the past China's National Bureau of Statistics has counted anyone between 15 and 64 years old as of working age. That age range is consistent with international convention and China’s own statistical yearbook. But in announcing last year's decline, the NBS adopted a narrower definition: 15- to 59-year-olds. By doing so, it drew early attention to a demographic downturn that will soon apply to 15- to 64-year-olds and to the population as a whole. 

    China’s National Bureau of Statistics said in January that the size of the country’s working-age population shrank for the first time in recent decades, in 2012. By the end of December, China's population between 15 and 59 was 937.27 million, a decrease of 3.45 million from 2011. That represents a major demographic turning point, not just for China, but also for Asia and the world. 

    And this turning point has come three years ahead of schedule, as most demographers had put China’s peak at 2015. 

    “A U.S. manufacturing renaissance looks much more probable if China’s shrinking labor force deters FDI [foreign direct investment] inflows,” said Chua Hak Bin, Southeast Asian economist at Bank of America Merrill Lynch, in a note to clients. “Cheap labor may emerge as the next scarce resource in the coming decade, as the labor force starts falling in China and the rest of Northeast Asia.” 

    Foreign direct investment into China fell in 2012 for the first time since the depths of the global financial crisis in 2009. Total FDI into the world’s second-largest economy was $111.7 billion last year, down 3.7 percent from 2011, according to figures released last month by China’s Ministry of Commerce. 

    Demographic trends usually move at a glacial pace. Therefore, while the demographic dividend for China and rest of Northeast Asia is dwindling, it continues to be enjoyed by many Southeast Asian countries and India -- at least for a little longer. 

    Bank of America Merrill Lynch estimates that the ASEAN 7 (Indonesia, Malaysia, Philippines, Thailand, Singapore, Vietnam and Myanmar) working-age-population will peak only in 2042, at about 472 million (versus 390 million currently). 

    ASEAN economies are already catching up in terms of FDI with China, driven in part by these demographic differences. 

    ____________________________________________________________________________________________________________Reprinted from International Business Times, February 20, 2013. View article at 
  • February 18, 2013 11:00 AM | Deleted user
    Group 1's Earl Hesterberg Moves to Shake Up the Traditionally Local Business With Deal in Brazil

    Group 1 Automotive Inc. is trying to shake up the auto-retail business by going global. 

    The Houston-based chain of 121 new-car dealerships has profited from rising sales in the U.S. but is betting that international markets will be essential to growth in coming years in what traditionally is a local business. 

    The company this month expects to close a deal to acquire a chain of 18 new-car dealerships in Brazil, a fast-growing auto market that is the fourth-largest in the world, after China, the U.S. and Germany. 

    "Auto retail is moving toward a global business," said Group 1 Chief Executive Earl J. Hesterberg. "Someday, U.S. [new-vehicle] sales are going to get back to flatter growth.…We need [to be in] at least one growth market to secure long-term growth for our shareholders." 

    Group 1 on Tuesday is expected to post a fifth-consecutive record quarter, on rising sales, higher prices and robust margins in its parts and service operations. Analysts have pegged fourth-quarter earnings at $4.72 a share, according to FactSet, up 23% from a year earlier. 

    Analysts will comb the earnings report for more details on Group 1's acquisition of UAB Motors Participações SA, which is based in São Paulo and operates Toyota, Nissan, BMW, Renault, Peugeot and Jaguar Land Rover franchises. 

    In the deal, announced Jan. 24, Group 1 will acquire all of UAB in exchange for $47.4 million in cash, 1.45 million Group 1 shares and the assumption of about $62 million in debt. The debt doesn't include money UAB has borrowed to buy cars for its stores, which is known in the industry as the floor plan. Group 1 in its earnings release will report costs associated with the deal of about $1.5 million. 

    International acquisitions are unusual in auto retailing, which depends heavily on personal contacts in local markets. Selling practices and norms also vary significantly among countries and cultures. 

    In Brazil, Group 1 faces risk from currency fluctuations and can't count on efficiencies between UAB's operations and those in the U.S., said Matt Nemer, an auto-retailing analyst for Wells Fargo Securities LLC. 

    But he said there could be a significant benefit from expanding into a huge emerging market. Auto sales in Brazil have increased 9% a year for the past five years, and the percentage of people who own cars is low and rising rapidly. "As long as the Brazilian economy stays on track, auto sales are going to keep going up for a while," Mr. Nemer said. 

    The deal also has the potential to raise the profile of Group 1undefinedand Mr. Hesterbergundefined as well as alter the landscape in auto retailing. Group 1 and its chief often are overshadowed by two industry heavyweights: Penske Automotive Inc., which is run by racing legend Roger Penske; and the country's largest dealership chain, AutoNation Inc., AN +1.82%and its CEO, Michael J. Jackson. 

    Penske operates 171 franchises in the U.S. and about the same number in Britain, Ireland, Germany, Puerto Rico and Italy. Group 1 has a small number of dealers in Britain. 

    AutoNation has 258 franchises in 15 southern and western states. Mr. Jackson recently repeated his company's intention to focus on the U.S. and steer clear of expansion abroad. 

    UAB will give Group 1 added heft. The 18 Brazilian dealerships generate about $650 million in annual revenue, and are expected to add three to five cents a share to Group 1's earnings this year. 

    The deal also casts a spotlight on Mr. Hesterberg, an easygoing, 59-year-old Ohio native who collects Bordeaux wines and spends most of his Saturdays in jeans hanging around Group 1 dealerships in Houston. He previously led Ford Motor Co.'s F +1.11%sales operations in Europe and ran a company that distributed vehicles for Toyota Motor Corp. 7203.TO +0.21%
    He arrived at Group 1 in 2005, when it was composed of 15 autonomous groups of dealerships and had a tangle of different computer systems. Mr. Hesterberg centralized accounting, purchasing and other back-office operations, slashing overhead and implementing uniform practices. 

    When the recession hit in 2008, he and other top Group 1 executives took 10% pay cuts. That helped reduce costs by $120 million over six months, enabling the company to remain profitable even as sales plunged. He continued acquiring dealerships, including 14 in 2011, adding $563 million in annual revenue, and 16 last year, adding $715 million. 

    Once the UAB deal is closed, Mr. Hesterberg said he would "look to expand quickly" beyond its 18 dealerships in Brazil. 

    Mr. Hesterberg said he is confident that the U.S. auto market will continue to expand for another two to three years. But once it returns to sales of about 16 million new cars and light trucks a year, growth will return to the pace of a large mature market. "You're not going to have 5%, 6%, 7% growth rates, and certainly not the 13% we had last year," he said.

    Reprinted from The Wall Street Journal, February 18, 2013. To view article, go to 
  • February 12, 2013 10:59 AM | Deleted user
    Companies are sharpening their risk management skills to thrive in the European marketplace

    The euro zone may be the biggest drag on global growth, but it’s also a critical market for many international companies. The Eurozone is the world’s second-largest economy, accounting for 17% of global GDP in 2012. Companies around the world have substantial exposure to the region through trade, finance and foreign direct investment.

    Photo: lillisphotography

    Although the risk of a break-up of the Eurozone has eased markedly since the European Central Bank announced a sovereign-bond buying program in mid-2012, demand in much of the euro area remains weak. The sovereign debt and financial sector crises of the past three years have squeezed credit markets and fuelled political instability.

    With unemployment in double digits in the EU as a whole, and several European countries (Italy, Spain, Ireland, Portugal and Greece) in deep multi-year recessions, many companies in North America are rethinking their risk exposures.

    Taking a longer view of the supply undefined and demand undefined chain

    First and foremost, the euro crisis is leading companies to consider whether they should be shifting towards emerging markets and away from the more-established Western markets, particularly Europe, according to Bill Murphy, National Leader, Financial Risk and Regulatory Management at KPMG.

    As importantly, the crisis has increased the emphasis on risk management. “More specifically,” says Murphy, “companies are looking beyond their own credit facilities to those of their customers and suppliers.” Put another way, firms operating in the euro zone are making sure they understand who has the ultimate obligation for paying for shipments. “For example, if they’re selling to a European manufacturer, they’re beginning to look at who that company’s customers are to determine whether there’s an indirect credit risk further down the chain that would limit their customers’ ability to pay,” he says.

    Similarly, companies are trying to get a better sense of whether European banks will be reducing their credit facilities to European businesses, which again could affect their customers’ ability to pay. When it comes to managing risks from European suppliers, “that again requires a deeper understanding of the supplier’s financial situation,” says Murphy.

    Clearwater Foods, a Canadian seafood company that derives 38% of its annual sales from the Eurozone, is adopting a combination of diversification, hedging and demand-chain intelligence to mitigate risks in its European operations. With a large international fishing fleet and processing plants, the company is redoubling efforts to minimize its exposure to a potential downturn in sales should the worse-case scenario in the region unfold.

    In the first place, Clearwater is mitigating foreign-exchange risks by adopting strategies to diversify its sales internationally. Says Tyrone Cotie, finance director at Clearwater: “What diversification meant to us over the last year, and into the next five years, is to move more into China. We’ve seen some big growth last year and this year in our Chinese sales. Over the next five years I expect we’ll also be tipping our toe into India.”

    Clearwater also builds pricing models that hedge against possible losses stemming from increases in the value of the Canadian dollar against foreign currencies. This effort is facilitated by another hedging initiative, which entails limiting the majority of sales to short-term contracts, typically less than six months. This enables Clearwater to forecast cash flows (and exchange-rate fluctuations) over shorter periods of time.

    Another strategy that may seem like basic common sense, but can make a significant difference to profitability in a difficult environment, is having a sound knowledge of the price charged to consumers in each market: this helps Clearwater ensure that it extracts the best margin it can. “Understanding mark-ups is critical,” says Cotie. “It’s knowing the profitability through the whole chain, so when we price products we understand how much Clearwater is making, how much the distributor is making and how much the retailer is making, so that we get our fair share of the profit pie.”

    Payment in installments and settlement in dollars are two more strategies for mitigating credit risk being adopted by some companies. Of course, it helps to be offering an essential service rather than one more dependent on discretionary spending decisions. U.S.-based TCT Ltd., for example, is the world’s largest licensed repair and overhaul facility for the industrial gas turbine engines manufactured by Rolls-Royce and GE that are used in the power generation and oil/gas transmission markets around the globe. As an essential supplier of repair services to the utilities sector, TCT has not faced the sharp drops in demand affecting companies such as auto manufacturers, automotive suppliers and producers of consumer durables.

    From this position of strength, TCT has instituted a staged payment program in order to minimize default risk. As Bev Stewart, CFO of TCT, explains, “When these engines come in to be fixed, they’re usually here between two weeks and three months and we’ll be getting probably 80% of that paid before the engine even leaves the shop.” As she notes, “Ten years ago staged payments in this industry were unheard of.” The company now also insists on payment in US dollars. “There are very few contracts accepted in euro nowadays,” says Stewart.

    Buy on the dips?

    Should Europe pull through this current crisis, it could be all good news for international companies looking to make a play in the region at this time. As KPMG’s Murphy puts it, if risks are being overstated, there may be an opportunity to acquire companies and facilities in Europe at bargain prices. “Industry players as well as institutional investors, particularly pension plans, might think it’s a good time to buy an active business in the EU, or real estate and infrastructure assets as well.”

    According to the EIU, Eurozone governments’ willingness to make compromises to keep the euro area intact, and to consider far-reaching institutional reforms, suggests that over time member states will address some of the fundamental weaknesses threatening the currency area. Yet doing so will take many years and could require a series of popular referendums on treaty changes, the outcome of which would be highly uncertain.

    Meanwhile, the risk management folks will continue to sharpen their strategies to make the best of the current uncertainty undefined and limit the possible collateral damage should the EU and Eurozone remain on shaky ground.

    Reprinted from EIU article published February 12, 2013 posted at Business without Borders website. To view article, go to

  • February 05, 2013 11:40 AM | Deleted user
    Political Crisis in Tunisia (2013-02-20)
    As the country in which the Arab Spring began, Tunisia’s stature and importance in the Middle East and North Africa have risen in recent years. As a result, the recent political unrest in that country is raising fears that the transitions to democracy underway in many countries in the region will struggle to succeed and could further destabilize the region. If a relatively stable and homogenous country such as Tunisia cannot build a stable democracy, many fear that there is little hope for democracy or stability in most other countries in the region.

    Tunisia’s latest political crisis was triggered by the assassination of opposition leader Chokri Belaid earlier in the month. Opposition supporters accused the leading party in Tunisia’s coalition government, the Islamist Ennahda party, of being behind the assassination, triggering massive anti-government protests. This led to Prime Minister Hamadi Jebali attempting to dissolve the government and form a new technocratic government, but this attempt was blocked by the Ennahda party. As such, Prime Minister Jebali announced that he would resign instead, creating much uncertainty in Tunisia.

    The division that has come to the fore in Tunisia in the wake of the Arab Spring is the same that has emerged in Egypt and other countries in the Middle East and North Africa, the division between Islamists and liberals. In Tunisia, the Islamist Ennahda party emerged as the leading political power in recent years and was considered to be relatively moderate. However, it faces pressure from more conservative Islamist movements that have gained significant support since the Arab Spring, just as the Muslim Brotherhood in Egypt is facing extreme pressure from the radical Salafists. As a result, this has pushed mainstream Islamist movements to pursue a more anti-liberal agenda, leading to severe political and cultural clashes that threaten to destabilize those countries transitioning to democracy in the Middle East and North Africa.

    Europe's Recession Worsens (2013-02-19)
    As expected, Europe’s recession worsened in the fourth quarter of 2012, highlighting the risk that Europe will remain in a recession much longer than many economists are forecasting. For the European Union as a whole, GDP contracted by 0.6% on an annualized basis over the final three months of 2012. For the Eurozone, the news was even worse, as its GDP contracted by 0.9% during the same period. As a result, 2012 was yet another difficult year for the European economy and the near-term outlook is bleak, while some European economies face a major long-term crisis.

    The economic results for the fourth quarter of 2012 in the European Union confirmed that the crisis in southern Europe was continuing to spread to nearly all countries in Europe. The region’s three largest economies all slowed sharply, with the German economy growing by just 0.4% on an annualized basis in the fourth quarter (and shrinking by 0.6% compared with the previous quarter). France’s struggles continued as well, with its economy shrinking by 0.3% on an annualized basis. Meanwhile, Britain’s economic performance was also very poor, having recorded no growth in either of the past two quarters. Many other northern European economies also remained in a recession in the latter part of 2012 as their export competitiveness waned.

    While the news from northern Europe was discouraging, the situation in southern Europe remained far worse. In Greece, where the crisis started, GDP contracted by 6.0% in the fourth quarter of 2012, continuing that country’s miserable run in recent years. In Italy, GDP growth was a disappointing -2.7% in the fourth quarter, the third consecutive quarter in which GDP contracted by more than two percent in Italy. In Spain, the recession also worsened, with the Spanish economy shrinking by 1.8% in the last quarter. This deterioration in southern Europe, coming from what was already a terrible position, signals that the crisis there will persist for some time, with growth almost certain not to return to pre-crisis levels at any point in the coming years.

    Europe is Losing the Currency War (2013-02-13)
    Thanks to the commitment of the European Central Bank (ECB) to defend the euro and protect Eurozone member states threatened with default, the euro has seen its value appreciate significantly against most other major currencies in recent months. While this is good news for those who were worried about the fate of Europe’s shared currency, it is bad news for European exporters. Moreover, with Europe increasingly dependent upon exporting outside of its region for its economic growth, this strengthening of the euro could not have come at a worse time.

    Following the ECB’s decision to protect Eurozone member states threatened with default by soaring bond yields, the euro was stabilized and later gained in value against most other major currencies. This was due to both a growing confidence among investors that the euro would survive its recent crisis and the decision by other major economies to push down the value of their currencies in order to boost their export competitiveness. As a result, exporters from rival economies such as the United States, Japan and many emerging markets have seen their export competitiveness improve significant against the Eurozone in recent months.

    This surge in the value of the euro has come at a critical time for the Eurozone’s economy. This is due to the fact that domestic markets in the Eurozone remain extremely weak as unemployment rates have risen and governments have enacted severe austerity measures to reduce their high levels of debt. With little prospect for growth on the domestic market, Eurozone countries are being forced to export even more goods and services in order to stabilize their struggling economies. With a strong euro, this has become increasingly difficult and this is raising the possibility that the current recession in the Eurozone could last even longer than had been previously forecasted.

    North Korea Strikes Again (2013-02-12)
    North Korea carried out its third nuclear test (the first two were in 2006 and 2009), a development that reinforces the notion that North Korea is an unpredictable state in the middle of one of the most important economic and political regions in the world. This test is likely to set back efforts to woo North Korea’s young new leader and reduce tensions on the Korean Peninsula. Moreover, this test comes at a time when tensions in the greater East Asian region are rising to dangerous levels that could involve the world’s leading powers.

    North Korea’s third nuclear test was its largest yet, and, while the device remained very small by international standards, it nevertheless showed that North Korea is making progress with its nuclear weapons program. More worryingly is the fact that North Korea appears to be getting closer to being able to produce a viable nuclear weapon that would be small enough to fit on one of its long range rockets, giving it the ability to target many of its perceived enemies. Coming as it did after a period of reduced tensions on the Korean Peninsula, this test serves to remind South Korea and its allies in the United States that North Korea remains a very dangerous state in a highly strategic location.

    North Korea’s latest nuclear test could not have come at a worse time with regards to the leading powers in East Asia given the heightened state of tensions in the region due to a range of territorial disputes between the region’s leading powers. Most importantly, the heightened tensions between China and Japan over their territorial claims in the East China Sea are just a spark away from producing a clash between these two large powers, a spark that could be provided by actions taken by North Korea. Moreover, North Korea’s volatile behavior has put the Chinese government in a bind, as it fears that such actions will lead to a greater US presence in Northeast Asia, while also worrying about the ramifications of a collapse of the government in North Korea.

    Egypt's Armed Forces Wait in the Wings (2013-02-05)
    With Egypt once again on the verge of descending into chaos, it is becoming apparent that the Muslim Brotherhood-dominated government led by President Mohammed Morsi is running out of time to restore order. If the unrest that has broken out across Egypt continues to worsen, Egypt’s armed forces will find themselves in a position where they are the only force in Egypt capable of restoring order. Should they move to do so, the violence in Egypt could rise to levels not seen there in recent history.

    The challenges facing Egyptian President Mohammed Morsi and his government are many, and Egypt’s new leaders are clearly struggling to cope with these challenges. On one hand, President Morsi’s power grab in late 2012 has cost him the support of many moderates in Egypt, leaving him increasingly dependent upon the support of the Muslim Brotherhood. Furthermore, his power within the Muslim Brotherhood is tenuous (he wasn’t their first choice for president) and should he continue to stumble, this could provoke a power struggle within that organization. Meanwhile, Egypt’s economy continues to falter, raising the level of popular anger in Egypt, a factor that could provide the spark for a major explosion of unrest.

    While the government struggles with these issues, and while the political opposition remains deeply divided, one political force in Egypt has managed to slowly recover from the loss of power it suffered in the wake of the Arab Spring, Egypt’s armed forces. In recent weeks, leaders of the armed forces have publically warned the government that it must do more to restore order to Egypt. This is a clear signal that the armed forces have regained confidence in their ability to impose their will on the government, a fact that must concern President Morsi. Should President Morsi fail, the stage will be set for a showdown between Egypt’s armed forces and its most power political force, the Muslim Brotherhood. This could lead to major clashes in Egypt and this would not only destabilize that country, but many other areas of the Middle East and North Africa as well.

    A Nasty Surprise from the US Economy (2013-01-31)
    The announcement that the United States had contracted in the fourth quarter of 2012 came as a surprise to many economists and sent shockwaves through the global economy that is dependent upon US economic growth to help it recover from its latest downturn. Moreover, this surprisingly poor performance showed that, for all of its natural advantages, the US economy can be held back by the ineptitude of the country’s current political leaders. As a result, the decisions of US lawmakers in the coming months will go a long way towards determining the health of the global economy in 2013.

    GDP growth in the United States contracted by 0.1% on an annualized basis in the fourth quarter of 2012, a major slowdown from the 3.1% growth that was recorded in the previous quarter. Much of this slowdown can be attributed to the uncertainty that the debate over the “fiscal cliff” created in the US’ business sector, as many businesses held back on major investments as this debate unfolded. Moreover, growth was reduced as a result of the major reductions in government spending that have been enacted in recent months, including the 22% cut in national defense spending in late 2012.

    With a looming debt ceiling debate and other budget-related issues set to emerge in the coming months, US politicians will continue to exercise massive influence over the performance of the US economy. If these politicians can reach concrete agreements on these issues, consumer and business confidence levels will be boosted and this will propel economic growth in 2013. Moreover, the outlook for US exports is improving thanks to strengthening export markets and a weakening US dollar. However, should political gridlock take hold in Washington, the US economy could be in for a rough ride this year and this will have major implications for a global economy seeking to bounce back from a difficult year.

    Dark Days for the Spanish Economy (2013-01-30)
    While the European Union has been growing more confident that the worst of its economic crisis is behind it, Spain provided a worrying reminder that while the region’s debt crisis may have eased, its growth crisis continues. As Spain’s recession deepens and its unemployment rate continues to rise to unprecedented levels, there are fears that Spain and many other countries in the European Union will struggle to pull out of their current recessions. Moreover, without a surge in export growth, this growth crisis could continue for a long time.

    The latest bad news from Spain was the announcement that the country’s economy had contracted by 1.8% on an annualized basis in the fourth quarter of 2012, while the shrinking of the Spanish economy accelerated even faster on a quarterly basis. For Spain, the problems are many, including a lack of export competitiveness inside and outside of the Eurozone, high private and public debt levels, a collapsed real estate sector and harsh austerity measures that have been enacted by the Spanish government. This has resulted in the worsening recession that is underway in Spain and the 26.6% unemployment rate that has been the result of this recession.

    For an economy like Spain that is facing a dramatic decline in domestic demand, the only way to pull out of this recession is through a major increase in exports. As Europe’s leading markets are forecast to remain weak for some time, this means that Spain will have to significantly boost its exports outside of Europe. However, before the crisis most of Spain’s exports were to other European countries and there is little demand for Spanish exports further afield. As a result, Spain will have to significantly boost its export competitiveness in order to attract foreign investment aimed at using Spain as a base for exporting goods and services around the world. However, a strong euro and growing unrest inside Spain could deter such investment at the time when it is needed the most.

    Britain and the EU (2013-01-29)
    British Prime Minister David Cameron presented his vision the United Kingdom’s role in the European Union, promising to hold a referendum on British membership in the EU should his Conservative Party win re-election in the UK’s next national elections. The need for Prime Minister Cameron to present such a stark choice for the UK’s future role in Europe has been driven primarily by domestic concerns, notably the growing opposition to the EU on the political right in Britain. Should Britain choose to leave the EU later this decade, there will be major ramifications for both Britain and the rest of Europe.

    In recent years, polls taken in the United Kingdom have clearly shown that a majority of British voters hold negative views of the European Union, particularly the huge amount of bureaucracy emerging from Brussels. This has manifested itself in the surge in support for Britain’s withdrawal from the EU within Prime Minister Cameron’s Conservative Party as well as the rise of the right-wing UK Independence Party. By declaring that a referendum will only take place if the Conservatives win the next national elections, Prime Minister Cameron has ensured that Europe will be a key issue in this election, a shrewd move considering the opposition Labour Party’s struggles with this issue.

    Thus far, much of the attention on this issue has focused on the detrimental impact that the UK’s withdrawal from the European Union would have on the British economy and the fact that Britain would still be subject to many EU laws and regulations. However, a British withdrawal would also have a major impact on the EU. For example, more liberal northern European economies would lose a leading ally, strengthening the hand of those countries that favor a greater state role in the economy. Likewise, Britain remains the EU’s leading military power and its withdrawal from the EU would leave France as the only EU country capable of projecting any kind of military force outside of Europe, further reducing the EU’s already waning geopolitical clout.

    Deadlock in Israel (2013-01-23)
    Thanks to an unexpected surge by a new center-left political party, Israel’s parliamentary elections resulted in an even split between that country’s right-wing and center-left blocs. This split will make it difficult for current Israeli Prime Minister Benjamin Netanyahu to form a new coalition government, as he will have to now negotiate with his current religious hardline allies as well as parties on the center-left. As a result, the deep divisions within Israel over the status of the country’s fast-growing ultra-Orthodox Jewish population and the peace process with the Palestinians will be exposed.

    Polls taken before Israel’s parliamentary elections suggested that Prime Minister Netanyahu’s Likud-Yisrael Beitenu alliance would win the largest share of the vote, which it did. However, this right-wing alliance saw its number of seats in the 120-seat parliament fall from 42 to 31. Meanwhile, the newly-formed center-left Yesh Atid party performed surprisingly well, finishing in second place with 19 seats. While the spilt between the right-wing and the center-left blocs was 60-60, 18 of the seats on the center-left are for Israeli Arabs and it is highly unlikely that they will be asked to join a new government, allowing the right-wing to lead the efforts to form a new government.

    This deadlock in Israel will have a major impact on three major issues in Israel. First, the Yesh Atid party has made in clear that it will not join any new government unless the law that allows ultra-Orthodox Jewish seminary students to defer their military service is changed, a move that is staunchly opposed by Prime Minister Netanyahu’s hardline allies. Second, the center-left has insisted that the peace process with the Palestinians must be revived, something that the prime minister appears not interested in pursuing. Finally, the center-left’s better-than-expected performance was due in large part to the growing problem of wealth inequality and the rising cost of living in Israel, and this will force any future government to pay more attention to economic issues.

    Positive Signs from the Chinese Economy (2013-01-21)
    With Chinese economic growth levels rebounding from a 13-year low in the latter part of 2012, there is growing optimism that China can once again become a leading engine of global economic growth. In particular, there are hopes that China begins to realize its potential as one of the world’s leading markets for exporters from around the world as purchasing power levels in China continue to rise. While the outlook for the Chinese economy is generally positive, it is highly unlikely that China’s economy will return to the soaring levels of growth that it reached before the recent downturn.

    The Chinese economy grew by 7.9% on an annualized basis in the fourth quarter of 2012, up from the 7.4% growth rate that was recorded in the previous quarter. This growth was largely driven by the Chinese government, which boosted spending on infrastructure projects late last year and which launched a series of incentives designed to increase consumer and business spending inside China. Moreover, Chinese exporters are benefitting from the recovery underway in North America and the higher rates of growth in some key Asian export markets, which have helped to offset the current weakness in export markets in Europe.

    As wealth levels in China continue to rise and as the country’s work force begins to decline, China will not be able to match the incredible high rates of economic growth that it did in the years before the recent downturn. Instead, economic growth rates are forecast to hover between 7% and 9% in the years ahead, which is still a very respectable level for an economy at China’s state of development. Moreover, this growth will be increasingly driven by rising levels of domestic spending in China, as export growth is forecast to slow as production and labor costs rise in China and as other countries’ export competitiveness improves vis-à-vis China. For global exporters, this means that China will remain a leading growth market in the years ahead, although growth rates will not match earlier levels.

    Reprinted from ISA Report published February 5, 2013 (updated February 20, 2013), International Strategic Analysis,  
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