COMMUNITY UPDATE

Criticaleye's Community Updates are read each week by Members, registered users, and subscribers globally. Click on any of the topics below to see the corresponding newsletter. If you would like to comment further on any of these topics, write to us via info@criticaleye.com.






The American economy is predicted to grow in 2010. According to the experts, it is set for faster growth than other nations, albeit with a continuing high rate of unemployment. This is the first in a series of updates focusing on world markets designed to help inform leaders in the decision-making process. This issue will look at the US, how successful it will be in 2010 and where, if any, the opportunities lie.

By all accounts, the US is set for faster growth than its counterparts. As Trevor Williams, Chief Economist, Lloyds TSB Corporate explains: "We predict the US will be the best performing of the G7 economies next year, growing by 2.3 per cent in 2010. Reasons for this are that measures by the US government are now starting to come through. We are seeing interest rate policies starting to bear fruit and a weaker currency is making the United States more competitive in the global market."

2010, it seems, is set to be a year of recovery for the US although the scale and severity of the global downturn will mean that some things will take longer to pick-up than others. Mary Jo Jacobi, Chair, imd Group, Civil Service Commissioner, US-UK Fulbright Commissioner, Associate, Criticaleye comments: "Most economists and American companies are predicting that the US will recover in 2010 - that is, growth of GDP should be positive, but unemployment will lag in 2011. The real question is whether the USA will sink back into recession, a W-shaped, double-dipped recession/recovery, once the full effects of huge deficit spending for the stimulus and bailouts of the financial and automobile industries significantly outpaces GDP growth.

"Relations with exporting countries such as China and Germany will be important. China holds tremendous amounts of US Treasury paper, and this is and will continue to be a crucial bilateral relationship," she continues.

The impact of the recession will hamper recovery in the States, not only for its impact on unemployment but also consumer confidence. As John A. Quelch, Lincoln Filene Professor of Business Administration, Harvard Business School explains: "The longer the recession lasts, the greater the chance that consumer coping mechanisms will become ingrained as part of normal behaviour. This could dampen long-term consumption. On the other hand, if given early access again to easy credit for political reasons, the American consumer will revert to the profligate spending that helped precipitate the crisis."

The US economy will also continue to be impacted by the fallout of the property market, regardless of how quickly and effectively businesses can bounceback and take advantage of the upturn. Bernard Cragg, Non-executive Director of Workspace Group and Mothercare plc as well as an Associate of Criticaleye offers this analysis: "My experience of the United States is that it has an amazing capacity to recover very quickly. In the US, management react to circumstances, cut costs very rapidly and then rebuild. That said, the impact of the sub-prime crisis has been significant across the whole US, especially mid-America. Recovery is going to be very difficult as the property market was a major source of employment. The stimulus that has been given to the economy should take effect next year and the economy should return to modest growth but still with high levels of unemployment."

Clearly, opportunities in this region will depend heavily on sector. There will be opportunities in some and not in others. John Cole, Chairman, Facilitas Group, Motorclean Group and Associate of Criticaleye, says: "I do not profess to be an expert on the US economy. However, the only UK-based business that I am involved with that sells into the US consumer products sector is assuming a depressed retail environment throughout 2010. There still seems to be a lot of bad news to come out on unemployment, repossessions and more bank debt write-offs. We do not have the option at present, but I think we would prefer to be developing the business in China or South-East Asia."

And then, of course, there is the political situation. Mary Jo, who has advised two US Presidents during the course of her career, has this to say: "Politicians will find themselves with a Hobson's choice, reluctant to raise taxes in a puny economy and reluctant to continue to live beyond its means. The Congressional Elections, on 2 November 2010, are looming with all 435 seats in the House of Representatives and 38 seats in the Senate in play. Traditionally, the party in power, in this case the Democrats, lose seats in the mid-term elections. Incumbents seeking re-election will be very nervous and looking over their shoulders to gauge their constituents' reactions to new legislation. And the President might not want the mid-term elections to become a referendum on his policies."

For up-to-date predictions on how the US market will fare compared to the UK and EU, please see Lloyds TSB Corporate Markets - Weekly Update. This piece also contains expert commentary on whether the fall in sterling is good or bad. Also see Criticaleye Community article Brand America at a Crossroads, written by independent policy advisor, author and researcher, Simon Anholt where he talks about the American brand and how the USA can rediscover and reshape in the global economy.

I look forward to seeing you soon,

Matthew