Global outlook for the telecommunication sector
The telecommunication sector, as with every other industry will have to be aware of the likely changes in the marketplace and prepare appropriately for what is ahead. The risk of unemployment remains high and is likely to stay that way over next 18 months.
This will lead consumers towards precautionary savings measures and while income growth remains weak, the fiscal pain and low wage growth will result in a more price conscious consumers for telecom products and services. As well as this, there is also the potential for more high risk accounts to be taken on by organisations looking to gain market share in a highly competitive environment.
The longer term growth rates have the potential to be much lower than before the financial crisis started. It is likely that the serveral factors will influence the speed of economic growth.
o Access and availability to credit will be more modest
o Fiscal contribution to growth will be negative or zero
o Households rebuilding their financial balance sheets
o Labour market may take many years to re-adjust to pre-crisis levels of employment
There is also a need to consider the likely economic scenarios in your planning and loss forecasting. The economic outlook remains uncertain, so there are many very plausible outcomes such as; unemployment rises faster than before, incomes are hit harder by fiscal tightening, and the current global recovery becomes unsustainable.
It is important for organisations to remember that not all of their customers will be affected in the same way by future macroeconomic prospects. There are always winners and losers in periods of growth and recession and the better your understanding your customer base and target markets the more likely that successful strategies will be put in place.
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The following graphs show supporting evidence of the trends noted. The data includes information on:
Corporate bonds and how the spread of these is narrowing
Money market spreads and how these appear to have normalised
Government bonds yields that are shown to be stabilising
The possible rebound in commodity prices
Inventories data highlighting how these have been run down
Please click on an image to see an enlarged version
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Experian's Global Futures Service provides forecasts, analysis and expert commentary to help organisations understand the economic, financial and business climate in over 40 countries across Europe, Asia, Latin America and North America.
For further discussions with Experian Global Futures about these articles, contact us
Global outlook
| USA - Recovery in sight Read more » |
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| UK - Recession still hurting Read more » |
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| Eurozone - Country stories emerge Read more » |
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| Overview of the BRIC countries: Brazil - Conditions improving Read more » |
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| Russia - Over the worst of it Read more » |
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| India - Overheating & drought Read more » |
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| China - Leading the recovery Read more » |
USA - Recovery in sight
'When all is said and done, the US economy will likely to be judged to have emerged from recession in August 2009. Both services and manufacturing are now expanding for the first time in 18 months. Consumers are set to post a strong quarter.'
'Significant downside risks remain. Unemployment is still rising and corporate and consumer defaults have further to go before peaking. While banks are looking healthier, surveys show that lending conditions are set to remain tight well into 2010.'
The beginning of the end
- 'A year after Lehman Brothers went bust, fomenting a global financial crisis and a sharp drop in activity, the US economy appears to have hit bottom in 2009q2. Real GDP contracted at a seasonally adjusted annualised rate of just 0.7% in the quarter, with trade and the government stimulus helping to arrest the previous sharp decline.
- Survey indicators show that economic activity started expanding again in August. Fiscal stimulus and the 'cars for clunkers' programme mean that household spending also has picked up strongly in recent months. Annualised growth in 2009q3 looks likely to surpass 3% and a better outturn is increasingly in prospect. This would give a further boost to sentiment and markets.
- But policymakers rightfully preach caution. Much growth in the global economy is in response to rebuilding inventories after the rapid destocking post-Lehman. In the US car incentives have come to an end and consumers are still hampered by falls in wealth and tight borrowing conditions.
- After moving sharply against the consumer, trends have become more mixed. The stabilisation of the housing market and the recent deceleration in job shedding should help lift confidence. That said, US households have seen US$13,000bn wiped off their net worth. It is no wonder then that spending continues on a broadly downward trend, despite the government's best efforts to the contrary. The latter will have an impact in 2009q3, with the 'cars for clunkers' programme helping to lift spending.
- This will not mark a permanent return to strong growth, however. The recovery in household spending will be a slow process. Delinquency and foreclosure rates continue to ramp up sharply across all credit classes.
Key risks
Significant downside risks remain. Unemployment is still rising and corporate and consumer defaults have much further to go before peaking. Surveys show that lending conditions are set to remain tight well into 2010. The withdrawal of monetary and fiscal stimulus over the course of next year will be a true test of whether the recovery does have legs.
Matthew Sherwood
Senior Global Economic Adviser
UK - Recession still hurting
'The UK recession has been severe, and while it has entered a milder phase, its consequences remain malign, notably in the form of steadily rising unemployment.
Further modest reductions in output will result in a 4.8% contraction for 2009 overall. Recovery will begin in 2010, but will be patchy and mild.'
'The risks to our baseline forecast have become more balanced, reflecting the recent improvement in sentiment and some activity indicators.'
Pace of recession is easing
The UK economy has contracted by 5.7% so far in this recession. The 2.4% quarter-on-quarter decline in 2009q1 should prove the severest part of the cycle, with the pace of contraction easing to 0.8% in the second quarter.
There has been improvement in some anecdotal indicators, which supports our baseline projection that the current quarter (July-September) will see further easing in the pace of contraction.
We remain cautious – the recession is not yet over and swine flu could yet prove damaging . Rising unemployment will weigh on consumer spending; investment is set to remain subdued in the face of ongoing lending constraints and concerns over the economic outlook and exports markets remain lacklustre. Given this, real GDP is projected to continue to decline, albeit only modestly, in the second half of 2009. Only a mild upturn is expected in 2010.
In 2011, the economic revival is expected to gather pace, but medium-term prospects are for annual average growth of 2%, well below the long-term average.
The Bank of England decided to extend its QE policy by a further £50bn to £175bn in August on the back of ongoing concerns over the fragility of the economy and credit restrictions.
Key risks
The risks surrounding our baseline view have become more balanced in line with recent evidence showing an improvement in confidence and activity. The main upside risk to our forecast is the possibility that the economy may revive sooner, and more sharply, than projected as the stimulus measures provide an unexpectedly strong boost. The key downside risk is that recent upturn in key indicators fades abruptly, leading to a more protracted recession. In addition, the threat remains that swine flu may seriously disrupt activity over the coming months.
Medium-term growth prospects are constrained by weak household finances, less support from employment income and housing wealth than in the past decade, the need to restore viability to government finances and a troubled financial sector.
Sunita Bali & Stephen Adams
Senior Economists
Eurozone - Country stories emerge
'The eurozone economy's precipitous fall moderated significantly in 2009q2, with Germany and France emerging from recession. While some weakness will persist into 2010, momentum will gradually build and drive the recovery in 2011.'
'But recovery will largely be one of two tales. Some export-led economies will lead the way in 2010-11 while the laggards will see little or no growth for at least another year.'
Deepest recession since WWII followed by gradual recovery
The eurozone continued to contract in 2009q2, but the rapid deterioration of the previous 12 months has come to an end. Real GDP fell by just 0.2% in the quarter, with the household sector just eking out growth. Compared with a year earlier, output continued to fall by nearly 5%.
France and Germany surprised by posting growth in the quarter. German households in particular raised their game, although it seems that car scrappage schemes played a big role in boosting spending in 2009q2. This also helped to arrest somewhat the sharp contraction in exports, with trade making a positive contribution to overall growth.
Despite recent signs of recovery, short-term forecasts have only been upgraded modestly. While growth in 2009q3 seems highly likely, the unique nature of this global downturn – with its roots in highly indebted consumer and financial sectors in some of the world's larger economies – precludes a rapid recovery. We could even see the odd quarter of contraction in the year ahead, particularly as scrappage schemes and inventory rebuilding come to an end.
Germany had been particularly badly affected along with other export-led economies, like the Netherlands and the Nordics. These ought to regain strength sooner, based on their macroeconomic and structural positions. Growing demand from the China and the US will also help.
Key risks
Order books still remain close to all-time lows and continue to contract, according to latest purchasing managers indices. With employers still shedding jobs – unemployment rate reached 9.6% in August – it does beg the question of just how sustainable the recovery will be after the inventory adjustment and scrappage schemes run their course.
While the euro would seem ripe for a sell-off against the dollar, it increasingly looks like euro strength is more of a permanent feature. This would especially hurt the 'laggard' members, whose exporters are getting killed by the strong euro.
Matthew Sherwood
Senior Global Economic Adviser
Overview of the Bric countries
Brazil - Conditions improving
'With sharp drops in investment and exports the Brazilian economy suffered two consecutive quarters of contraction in 2009. Consumer demand has been more resilient, helped by targeted fiscal stimulus.'
'Weak external demand and the deteriorating investment and business environment will underpin recession in 2009. 2010 should see a return to growth, but with full recovery not expected until 2011.'
A mild recession in 2009
Real GDP will contract by 0.7% in 2009, driven mainly by falls in investment and exports.
As a result of the negative business environment in the next two years, investment and employment growth will fall noticeably from their recent highs. We expect unemployment in urban centres to rise above 8% of the labour force in 2009 and to stay around this mark in the following years.
In spite of the fiscal stimulus, consumer sentiment worsened in the first half of 2009 on the back of job losses. We expect consumer expenditure to grow by just 1.5% in 2009 a six-year low. Continued fall in inflation will provide additional relief to consumers in the medium term. We expect consumer sentiment to recover relatively quickly with expenditure growth rising above 3% in 2010 and averaging above 4% thereafter.
As inflation heads down the central bank has cut its SELIC target rate, to a record low of 8.75% in July 2009. As the monetary easing cycle comes to an end the Monetary Policy Committee is expected to maintain the present SELIC rate and to resume an upward trend next year, with the SELIC rate reaching 9% by end-2010.
Over the next decade overall economic activity will expand by an average of 3.7% per annum, with growth in consumer expenditure matching that of the overall economy. Investment will continue to underpin the expansion with GDP growth averaging around 6% per annum in the next ten years. Investment-led productivity gains mean that employment growth will be slower than the high rates seen recently.
Key risks
Worsening employment prospects could have a large, negative impact on consumer sentiment, with implications for the growth outlook in 2010.
If fiscal reforms fail to materialise, employment and other costs could remain unnecessarily high, hitting the competitiveness of Brazil's exporting industries.
Structural features such as worsening demographics, poor infrastructure and low levels of educational attainment pose downward risks to the long-term growth forecast.
Sebastian de-Ramon
Senior Emerging Markets Economist
Russia - Over the worst of it
'Led by export sales and the fiscal stimulus, the Russian economy should emerge from recession from the final quarter of this year. This recovery will be disappointingly slow, though.'
'The recession could feature a second dip in 2010 if the oil price were to slip under US$50 per barrel again.'
Slow burn recovery fuelled by the rising oil price
Led by export sales and the fiscal stimulus, the Russian economy should emerge from recession from the final quarter of this year. This recovery will be disappointingly slow, though, and heavily dependent on the Urals crude oil price staying above US$50 per barrel.
Reminded of the1998 financial crisis, Russian consumers will continue to repay debt over 2010. Consumer markets will improve tentatively from mid-2010 but are unlikely to reach trend growth for several years. It seems that Russia's new middle class, the beneficiaries of the energy-export drive, has been affected more than most by the economy's slump.
The Russian Central Bank (CBR) will continue to reduce its policy rate (currently 10.5%) toward 7% in 2011 to support domestic demand and constrain the rouble's appreciation. We expect the CBR to adopt a formal inflation target by 2011, forsaking the current exchange rate support.
The government appears committed to running fiscal deficits over the next three years after a decade of surpluses. The anti-crisis package will involve exhausting the Reserve Fund by the end of 2010 and a step up in gilt sales. The government has also increased its influence in private businesses through foreign debt subsidies and banking system bail-outs.
Despite stabilising in recent months, unemployment will soon resume its upward trend even though regional programmes will distort the official data. Wage inflation will continue to fall in real terms over the next two years.
The rouble should continue to strengthen into the medium term, especially from 2011 when the economic recovery becomes more convincing and the CBR removes its exchange rate support.
Key risks
Its narrow industrial base will keep the economy vulnerable to swings in the oil price. The recession could feature a second dip into 2010 if the oil price were to slip under $50 per barrel again.
The government has stepped up its rhetoric on both intervention in industry and trade protectionism, potentially deterring investors just as changing risk aversion seems to be favouring emerging economies.
Matthew Sherwood
Senior Global Economic Adviser
India - Overheating & drought
'The Reserve Bank is looking at raising rates as inflation remains stubbornly high. Government action has helped to put a floor under the economy. GDP is now on an upward trend.'
'With the worst of the global recession behind it, the Indian economy will see growth stabilise before picking up more strongly in 2010/11. Downside risks are looming as prices rise sharply owing to the fiscal stimulus and supply constrains.'
Growth rates soften – but economy remains robust
The last two quarters of FY2009 saw a significant slowdown due to the global backdrop. After three years of +9% growth, annual expansion slowed noticeably to just 6.1% in year 2008/09. The economy has since embarked on an upward trend, recording 6% year-on-year growth in 2009q2 (FY2009q1).
As the deepest point of the world recession falls between the two fiscal years, real GDP growth is projected to slow from 6.1% in fiscal year 2008/09 to 5.7% in 2009/10. Except for government spending all other components of domestic demand will shrink considerably in 2009/10.
India has suffered its worst drought since 1972, with rainfall 23% below average at the end of the four-month monsoon season. As the economy recovers, the Reserve Bank of India faces renewed pressure to tighten monetary policy sooner as the only way to keep a lid on prices.
Consumer demand almost came to standstill in 2008/09, falling to annual growth of just 1.6% in CY2009q2. As inflation remains high and employment prospects difficult this slowdown is likely to continue. 2010/11 will see some slow improvement. Household consumption growth in excess of 6% per annum is projected over the medium term.
Key risks
Risks to the forecast are somewhat balanced between downside and upside. The return of strong growth in domestic demand, coupled with supply-side bottlenecks caused by the drought, are resulting in mounting inflationary pressures. Reserve bank action will be crucial.
On the upside, asset markets have been rallying, which has major implications for high-spending, wealthier households. If more than short-lived, the consumer sector could be poised to rally strongly in 2009/10.
Sebastian de-Ramon
Senior Emerging Markets Economist
China - Leading the recovery
'While not quite large enough to be a driver of the global economy, China is doing more than its share in terms of giving a boost to regional economies and western capital exporters, through fiscal stimulus and rampant lending.'
'The government has used the ample resources at its disposal to sustain growth in the domestic economy as exporters await a global recovery. That looks to have been a sound strategy, but could yet fail if the recovery in the G7 economies falters.'
Recession avoided
After essentially coming to a halt in late 2008, the economy has shown remarkable resilience in the face of strong headwinds from the global economy. Annual real GDP growth in 2009q2 hit a four-quarter high of 8.1%. After taking the brunt of the global recession, manufacturing has expanded for six consecutive quarters, according to the latest HSBC PMI survey.
The sharp drop in global demand in late 2008 had China teetering on the brink of recession. But government stimulus measures – which mainly involved bringing forward infrastructure plans, subsidies and tax cuts – have gotten the economy moving again. This will be enough to underpin real GDP growth of 8% for 2009.
While net exports and inventories will be a considerable drag on growth in 2009, household and government spending and investment will remain comparatively strong. Besides government investment plans, state-controlled banks have pumped considerable sums of money into the business and consumers sectors.
Although the worsening global economic environment is hitting employment in key export-led sectors, retail sales have remained surprisingly strong. Government steps to address consumers' concerns about education and healthcare should help to free up cautionary savings.
The consumer sector should eventually take over from investment as the driver of growth. But such a rebalancing is likely to be gradual, particularly given investment's substantial share of output and its focus of government stimulus.
Key risks
The government has ample resources to help curb the impact of the global slowdown while avoiding the inflating of domestic asset bubbles. Even so, its metal will be tested, as there will not be enough jobs to absorb the waves of rural poor (an estimated 8 million per annum) that usually make their way to the urban growth centres.
While government stimulus is playing a major role in China's growth story, the danger is that money is being thrown mainly at state-owned companies and infrastructure projects that will do little to raise the economy's long-term efficiency while proving inflationary in the short to medium term. Authorities are increasingly on watch for asset bubbles, and have started to rein in policy. New lending hit a nine-month low in July.
Matthew Sherwood
Senior Global Economic Adviser
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