The political unrest spreading across the Middle East and the resultant disruptions to the regional economy are not considered very significant for the global economic prospects for this year. Though oil prices have reacted on fears of lower supplies from the region, there have been no actual disruptions so far and any perceptible deceleration in global economic growth is expected only if prices shoot up further. It is widely believed that, unless the agitations spread to the region’s major oil producers like Saudi Arabia, the prospect of a sustained upsurge in energy prices is limited.

Global equity prices trended higher in February, but the emerging markets underperformed the developed markets by a wide margin for the second successive month. Global trade expanded more than 15percent in 2010, allowing merchandise trade volumes to regain the pre-recession level by December. Global factory activity gained pace in February, helped by significant gains in Australia, Germany and Japan. Central banks in select emerging countries like China and Brazil again hiked interest rates and tightened reserve requirements for commercial banks, while the developed economies continue to hold their policy rates.

Rising inflation in fast growing economies remains biggest risk to global growth

While energy prices still remain well below their previous record even after the latest spurt, other important industrial commodities like iron ore and copper have never been costlier. If commodity prices remain high as expected, inflationary risks in the fast growing emerging economies will likely worsen and force additional policy measures which are restrictive for growth. In addition, there is no respite yet from soaring food prices, which again affect the less-developed economies more. If further policy tightening and reduced disposable incomes restrict domestic consumption growth in these economies, aggregate global growth rate may turn slower than currently forecasted. In the developed economies too, costlier fuel and food will gradually eat into household budgets. However, the negative impact on consumption may be relatively smaller than in the past, as the developed economies in particular have become more energy efficient in recent years.

Record iron ore prices boost miners, but outlook for the healthcare sector remains clouded

For the mining industry, record high iron ore prices will likely provide the growth momentum this year. Spot prices for Australian ore are nearing $200 a ton, as compared to the $60 a ton fetched until early 2010 under negotiated annual supply contracts, which have since been discontinued. Demand growth remains robust, especially from China, while supply constraints have limited the availability of iron ore in the international market. No new major mining projects are due for completion in the short-term, which will likely restrict the growth in supplies. Remarkably healthy cash flows have encouraged the large mining groups to increase share buy-backs and dividend payouts.

The renewed uncertainties over the success of U.S. healthcare reform, and the steadily declining productivity in research for new drugs, continue to cloud the outlook for the healthcare industry. Opposition from several states and mounting legal challenges to the U.S. federal healthcare reform package will likely make its implementation difficult. For the pharmaceutical manufacturers, new drug discoveries are proving more elusive even as research costs and the threat from cheaper generic drugs swell. To maintain growth, some of the large drug manufacturers are actively looking for acquisition opportunities in faster growing market segments like biopharmaceuticals.

The strong growth in global merchandise trade volumes continues to favor the outlook for the shipping industry. Though capacity expansion in the industry may outpace demand growth in the near term, the large shipping companies remain positive about long-term growth, as evidenced by the exceptionally large orders for new ships recently. Expanding trade relations of Asian countries like China with new trading partners in Latin America and Africa are expected to provide sustained growth opportunities for the industry. 

 

For a free subscription to this article, or any of our other economic report offerings, please visit our Subscriptions page.

If you are a Financial Professional, we invite you to register here for our exclusive content.

This article is for informational purposes only. This article is not intended to provide tax, legal, insurance or other investment advice. Unless otherwise specified, you are solely responsible for determining whether any investment, security or other product or service is appropriate for you based on your personal investment objectives and financial situation. You should consult an attorney or tax professional regarding your specific legal or tax situation. The information contained in this article does not, in any way, constitute investment advice and should not be considered a recommendation to buy or sell any security discussed herein. It should not be assumed that any investment will be profitable or will equal the performance of any security mentioned herein. Thomas White International, Ltd, may, from time to time, have a position or interest in, or may buy, sell or otherwise transact in, or with respect to, a particular security, issuer or market on our own behalf or on behalf of a client account.

FORWARD LOOKING STATEMENTS

Certain statements made in this article may be forward looking. Actual future results or occurrences may differ significantly from those anticipated in any forward looking statements due to numerous factors. Thomas White International, Ltd. undertakes no responsibility to update publicly or revise any forward looking statements.

 

 

 

 

 

(c) Thomas White International

www.thomaswhite.com