bizzXceleration: Performance, Value and Profit

EUROPE

Europe's Economic Slowdown Will Stretch Through 2009, EU Commission Says The European economy will slow for a third year in 2009 as faster inflation weighs on consumer spending and discourages the European Central Bank from cutting interest rates, the European Commission said. Economic growth in the euro region will slow to 1.5 percent next year, the commission said today in its spring economic forecast, 0.6 percentage point less than it projected in November and below the 1.7 percent expansion expected for 2008. Inflation will jump to 3.2 percent this year, 0.6 percent more than the commission's February forecast, before easing to 2.2 percent in 2009. ``I'm surprised they felt the need to bring it down so far,'' Jonathan Loynes, chief European economist at Capital Economics Ltd. in London said. ``It's very early days, there are an awful lot of uncertainties.'' Record oil prices, declines in the pound and the dollar, and a global credit shortage are buffeting the European economy as the U.S. teeters on the brink of a recession. The fastest inflation since 1992 is preventing the ECB from cutting interest rates to support economic growth.

European Retail Sales Fell Most in Four Years in April, Bloomberg PMI Says European retail sales dropped the most in more than four years in April as rising fuel and food prices squeezed shoppers' budgets, the Bloomberg purchasing managers index showed. The measure of sales growth in the euro region declined for a second month to a seasonally adjusted 41.8 from 48.2 in March. A reading below 50 indicates contraction. The index, which is based on a survey of more than 1,000 executives compiled for Bloomberg News by NTC Economics Ltd., is at the lowest level since its introduction in January 2004. Sales also fell from a year earlier. The fastest inflation in 16 years is squeezing retailers' margins and weighing on consumer spending while at the same time discouraging the European Central Bank from cutting interest rates. The European Commission yesterday cut its forecasts for economic growth this year and next in the 15-nation euro region. European Confidence Declines to Lowest Since 2005; Inflation Slows to 3.3%

ASIA 

Asia's Optimism is Misplaced The decoupling story has come full circle. A year ago, Asia had outgrown the West. Then, as Asian shares fell, those arguing the region could stand alone became very quiet. Now the talk is that even with the U.S. teetering on recession, Asia's rapid growth will allow its markets to rise. Call it Decoupling Theory 2.0. There are problems with this thesis, not least of which is the surging price of oil and food, and risks of wage-related inflation. Asia has avoided the worst of the credit-market crisis; its banks were less exposed to dodgy debt than Europe's. Yet the effects of the turmoil -- shattered U.S. consumer confidence and aggressive Federal Reserve rate cuts -- have barely begun funneling Asia's way. Asian central banks and governments will soon face their gravest challenges in a decade.

If Asia Builds It, Pimco's Billions Will Come That, of course, is exactly the problem. To David Fernandez, head of emerging-markets research at JPMorgan Chase & Co. in Singapore, it's a ``Field of Dreams'' dynamic: If Asia builds bigger, deeper, more transparent debt markets, many investors will come. The trouble is, Asia isn't quite there yet at a time when big companies such as Pimco are keen on investing there. Great strides have been made in the 10 years since the Asian crisis. Bond sales have grown steadily, secondary-market trading has increased, central banks are more transparent and regulatory environments are being streamlined. The improvements are coming from a very low base, though, and India is a case in point. Its to-do list applies to much of emerging Asia: increasing investor diversity, adding to the availability of hedging tools, developing better secondary-market pricing, establishing investor-friendly tax policies and cooperating to promote more-liquid regional markets. If Asia had done more during the good times of recent years to tackle those issues, companies such as Pimco might be pumping more money into the region. Now that credit markets are in disarray, it's harder to attract more foreign investment to Asia.

JAPAN 

BOJ May Put Off Plan to Raise Rates as Shirakawa Foresees Further Slowdown The Bank of Japan may next week discard language calling for higher interest rates as the world's second-biggest economy cools. In its twice-yearly outlook, the bank may also say the economy will expand at a slower pace this year than it had predicted six months ago while inflation may rise faster than expected, according to economists surveyed by Bloomberg News.

Japan's Inflation: Bad Timing Japan's policy makers, dogged for years by falling prices, had long yearned for a little bit of inflation. But now that the global tide of inflation has finally reached Japan, nobody is cheering. The reason: Prices are rising for the wrong reasons. A little bit of inflation can be a sign of strong demand in a healthy economy; if consumers and businesses are prepared to pay more for goods and services, the providers of these can charge more, and prices rise. But the price increases since last year are caused by higher prices of food, commodities and energy on global markets that are driving prices up world-wide. As the prices of imported materials are higher, manufacturers have to charge more for the products in order to make ends meet. Japan Factory Production Fell 3.1% in March From Record on U.S. Slowdown

INDIA

India's economic miracle is losing its magic, raising doubts about whether the nation can fulfill its ambition of becoming the next economic superpower. Government officials and other India boosters hoped India had become one of those rare economies -- such as China today and Japan in the 1960s -- that could grow around 10% annually for a decade regardless of what happened in the rest of the world. Growth in India's gross domestic product has averaged just shy of 9% for the past five years. It reached 9.6% in the fiscal year that ended March 31, 2007. The government forecasts that the economy grew 8.7% in the fiscal year that ended last month. But as the global slump and rising inflation take their toll, it is becoming clear that the rapid expansion was due in part to benign conditions that boosted emerging markets everywhere -- and that India remains vulnerable to economic cycles. Some forecasters now say GDP may grow just 7% or a tad higher this year and maybe even next. (Please see related article on page R5.) The difference between 7% and 9% expansion may not sound like much, especially when some countries, including the U.S., are struggling to show any growth at all. But it will make an important difference to India. India also has a lot of catching up to do in reducing poverty and moving workers from farm to factory or services jobs. Its population of 1.1 billion, unlike China's, is heavily skewed toward the young. But India can only reap that "demographic dividend" if there are enough jobs for those entering the labor force each year. Widespread joblessness could exacerbate India's social tensions, especially when television is making the underprivileged increasingly aware of what they lack.

Shortage of Laborers Plagues India India, a nation of 1.1 billion, has a chronic labor shortage, in the area where it needs workers most. As it grows rapidly -- tilting from a stagnant, rural economy to a developing, urban one -- India is building thousands of new homes, offices, malls, airports, roads, ports, power plants and industrial parks.So many projects are now under way in India that the pool of workers with even the most basic skills is running dangerously dry. The shortage of bricklayers, rod benders, welders, wall painters and other skilled and semiskilled laborers is threatening to slow the construction of projects that are key to the nation's economic growth. Improving its decrepit infrastructure is one of the most pressing issues India faces. It is crucial for unclogging chokepoints that are stoking inflation, which is rising fast. And it will determine whether India can keep growing at a pace that will allow it to fulfill its aspirations of becoming a commercial superpower to rival China.

CHINA

Claims About China’s Prominence Are Overblown Unlike many observers who believe China is on its way to becoming the next world hegemon, George F Colony, CEO of Forrester Research Inc, the premier research company, says many claims about the emergence of this country are wildly off.  For him, all the news reports of purported economic threat to US or the west from the east are nothing but half-baked gibberish parleys. According to a Forrester 2006 survey, Chinese consumers have drastically lower trust in TV, newspapers, and the Web - considered essential parameters of a free economy - than consumers in the U.S., Japan, South Korea, Australia, and India. “Though China boasts of its huge human resource (about 1.2 billion), it’s only 300 million people in the eastern coastal metropolis’ that are driving the phenomenal growth in the country, while about 500 million peasants in the west are untouched by the newfound prosperity,” Colony reiterates. Besides, what the figures have to say, Colony also believes that China is emerging as a world power. However, he is doubtful if the communist nation can sustain the growth for a longer time, which he feels is highly uncertain. “I am skeptical that the country can sustain its present trajectory without near term trips and falls, and that it’ll grow to play at the same level as the U.S. and the EU unless it embraces major structural changes – primarily political,” he says.

 You have 7 years to learn Mandarin But a recent study by the economist Angus Maddison projects that China will become the world's dominant economic superpower much sooner than expected - not in 2050, but in 2015. While short-term investors are already cashing in on China's growth by playing the global commodities boom, smart long-term thinkers are contemplating what happens when China matures from an exporter of cheap goods to a competitor in sectors where the U.S. is dominant - technology, brand building, finance. China has almost wiped U.S. makers of low-value items like toys and socks, but by 2015 it may threaten Apple J.P. Morgan Chase and Procter & Gamble. It will increasingly influence the S&P 500 and the mutual funds in our 401(k)s. So it's worth looking at how that will happen, what it means, and what anyone can do in the seven years before the baton is passed. If that happens, America will close out a 125-year run as the No. 1 economy. We assumed the title in 1890 from - guess who. Britain? France? No. The world's largest economy until 1890 was China's. That's why Maddison says he expects China to "resume its natural role as the world's largest economy by 2015." That scenario makes sense. China was the largest economy for centuries because everyone had the same type of economy - subsistence - and so the country with the most people would be economically biggest. Then the Industrial Revolution sent the West on a more prosperous path. Now the world is returning to a common economy, this time technology- and information-based, so once again population triumphs. So how should we make the most of our seven-year grace period? For companies: Focus on getting better at your highest-value activities. Just because the Chinese will be fighting you in the same industries doesn't mean you'll lose. (Investors, remember that China bought $3 billion of Blackstone (BX) at the IPO price of $31 last summer, and the firm is now trading at $19.) It only means you'll have to work harder to win. For individuals: You can avoid competition with Chinese workers by doing place-based work, which ranges in value from highly skilled (emergency-room surgery) to menial (pouring concrete). But the many people who do information-based work, which is most subject to competition, will have to get dramatically better to be worth what they cost. For government leaders: Improve U.S. education above all.

 Turkey's Lira Goes From First to Worst as Attack on Erdogan Pummels Bulls For proof that Turkey's economy and the government of Prime Minister Recep Tayyip Erdogan may be unraveling, look no further than the lira. The ruling Justice and Development Party touts the lira's growing ``prestige'' on its Web site following the currency's record 21 percent rally in 2007. Those gains are evaporating as inflation and political instability grip the Muslim nation of 72 million seeking membership of the European Union. The lira has fallen 8.4 percent against the dollar this year, to 1.2785. Once-bullish traders lured by a benchmark interest rate of 15.25 percent are dumping the currency as the Constitutional Court weighs an attempt to remove Erdogan and his government from office. The decline is undermining the central bank's efforts to curb inflation, which rose at a 9.2 percent rate in March, more than any member of the EU.