Investment outlook strong, driven by pressures to improve productivity
By Daryl Delano -- Modern Materials Handling, 8/1/1998
While overall GDP growth rates are expected to slow this year in most of the world, business investment is expected to fall even more sharply. The rate of growth will decline just about everywhere, including in North America; absolute declines will be the rule in much of Asia. This will directly impact materials handling equipment manufacturers and distributors. Already we are seeing the effect of foreign business investment cutbacks in the trade numbers, including slower growth in materials handling exports during the first three months of 1998.This scenario is representative of the general consensus of economists who follow the developed economies of the world. Monthly surveys conducted by the Blue Chip Economic Indicators newsletter and the London-based firm of Consensus Economics, Inc., among others, paint much the same picture. No worldwide recession is in the cards, but just about everyone who follows the economy seems to agree that investment trends, in particular, will soften this year.
Forecasts for just about all nations in the Asia/Pacific region have deteriorated badly since the multi-faceted "Asian crisis" began with the devaluation of the baht last July. The perhaps still optimistic view is that Japan's economy will stagnate this year: the consensus centers on a slight 0.4% decline in Japan's real GDP.
For three nations in the region, definitive absolute declines in GDP are expected this year. The consensus view of economists is that Indonesia, Thailand, and South Korea will all see their economies contract during 1998, and that each will record marginal gains of only 2% or less in 1999. As grim a scenario as this is, it is just as bad on the business investment front.
The good news, however, is that 1999 will likely be a much better year than 1998 is shaping up to be.
Forecast for worldwide economic growth
Annual percent change in gross domestic product
1998 1999
North and South America
United States 10.1 6.3
Canada 10.9 7.7
Mexico 12.5 21.9
Brazil 2.8 7.6
Europe
United Kingdom 4.3 2.7
France 4.6 5.9
Germany 6.6 7.1
Italy 4.7 5.5
Asia/Pacific
China 13.0 13.6
Japan -2.0 -1.2
Taiwan 8.9 7.4
Hong Kong 3.7 6.1
Indonesia -23.8 -0.4
Source: Consensus Economics, Inc.
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