Global economy: fighting for fiscal future

The marginalisation of world economies, euro zone crisis, global food inflation, increase in poverty, poor governance, confused fiscal priorities, sharp slowdowns, growing fuel prices, environmental hazards, fracturing of social safety nets, destabilising effects of unemployment, painful consequences of armed conflicts, surging crimes, natural disasters and pandemics have collectively pushed the once flourishing states to ask their subjects to tighten their belts. But this sort of forced austerity and spending cuts breed more serious difficulties, intensifying the problems rather than finding a solution. This is a tantamount to promoting poverty among the already vulnerable communities wherein, those living in abject poverty are the first causality. It is politically and morally unacceptable that more than 1 billion people on the planet still have to survive on less than one euro per day. That figure may well rise as the world’s population grows. The world economy faces exceptional – perhaps, even unprecedented uncertainty.

Empty pocket syndrome
Let us see the inevitable impact of the global crisis on the life of developed nations. On this Christmas, plenty of Americans had to hold back as the lure of flashy ads, tempting bargains and family expectations, clashed with realities of the economy under an empty pocket syndrome which has hit even the affluent sections of society. Experts in consumer behavior say that situation can strain the brain. There was none of the traditional holiday bustle at the dozens of stalls selling low-cost trinkets. Many retailers extended opening hours and provided heavy discounts, but of no use.
In Italy, the high-end stores like Prada, Gucci, Armani, Bulgari, Louis Vuitton, Valentino and Ferragamo remained dilapidated in a sense that salespeople kept standing idly by the door. There has been a yawning emptiness in these shops at Christmas. As Italians look ahead, they see the specter of a deep recession. The government has already imposed new taxes, businesses are closing, and in this holiday season, the prospect of austerity measures worth, $40 billion, has created a mood of fear and insecurity. CEO of a reputed chain said, “This looks like a postwar economy as this Christmas season was the worst in 50 years. Even my rich clients this year are not spending as they are scared,” he added.

Confidence level
Business confidence in the global economy has evaporated amid the escalating eurozone crisis, leaving a prevailing mood of pessimism in many emerging markets as well as in Europe. The looming uncertainty over the global economy has turned consumers into more value-conscious, mobile, experience-hungry, social sharing and green enthusiasts. Add a touch of convenience for a , and this paints a picture of the new global consumer. Euromonitor International, a global market research organization, reviewed the key consumer and industry trends that defined 2011, and offers the difficult prospects for 2012.

Retail market
The analysts say that economic woes will see more consumers looking up to new non-monetary forms of status like altruism, connectivity, eco-credentials and acquired skills. The survey says that less will be more in 2012, as the companies will be helping their customers to consume less of their products. The retail industry is told that in 2012, opportunities to cater to millions of low-income urban consumers will be the biggest ever. The positive side of the retail story is that best case scenario will see retailing be worth $13.2 trillion, by the end of 2012. However, macro-economic issues will remain a concern. Cross-border sales through internet stores are likely to put bricks-and-mortar retailers in all countries under pressure in the short term. Grocery retailers are set to enjoy faster growth than their non-grocery peers. Taking a greater share of their competitors’ sales will likely aid grocery retailers during the year. Retailers are going to be increasingly aware of M-commerce (mobile commerce) in 2012. With more mouths to feed, retail volume will continue to outpace retail value sales.

Conscious consumption
It is also anticipating that crowd sourced problem-solving will trigger innovation – especially if participation is made simpler. (Crowd sourcing is the act of sourcing tasks traditionally performed by specific individuals to a group of people or community (crowd) through an open call). Emphasis will be on conscious consumption in 2012 as consumers continue their search for a more meaningful life. Economizing on luxuries is a logical answer to address the scarcity of resources.

Cost cutting
Another vital prediction is that collaborative consumption, renting goods instead of buying them, will be big in 2012. This is a disposable way of fulfilling one’s needs by paying as little as possible. Renting expensive ceremonial costumes for wedding parties is the best example of collaborative consumption.
The richest 10 per cent of households in 24 major economies account for more than 1/3 of their country’s income. The incomes of the richest 10 per cent in the USA are 37 times higher than those of the poorest. This situation is likely to rationalise the ongoing Occupy Wall Street movement which is gaining a fresh momentum with every passing day.
Unemployment, particularly youth unemployment, will plague advanced economies in the New Year. For instance, more than half of the people aged, 15-24, are without work in Spain and the figures may grow further in future. Underlining the growing divide globally in terms of spending power, jewelers is expected to be the fastest growing channel in 2012, boosted by emerging markets. Asia Pacific is expected to overtake Western Europe as the biggest regional packaged food market in the coming years.

Uncertainty
The world economy faces exceptional – perhaps, even unprecedented uncertainty. A growing prevalence of convenience and snacking will make eating on-the-go, the new “normal” as it enters 2012. The rebound in output among developed countries has proven feeble, yet fiscal austerity, especially in the eurozone. The collective austerity of developed economies will likely bring on one of the most severe fiscal contractions in many years. These effects will be partly offset by developing countries, although growth is moderating as global financial conditions deteriorate.

Global perspective
Euromonitor International has forecasted a turbulent period ahead. It wrote, “World growth will slow down in 2012 amid ongoing sovereign risk and austerity programme. The by 3.8 per cent in real terms in 2012, down from 3.9 per cent in 2011 and 5.2 per cent in 2010. The slowdown might be attributed to financial instability and fears of sovereign risk, which threaten to spread beyond a few European economies. In other developed countries (such as the USA), policy indecision exacerbates uncertainty. As a result, stimulus programmes launched in 2010-2011 are being replaced by austerity measures.” Euromonitor expects developed countries to grow by 1.6 per cent in 2012 in real terms. Such an outcome would be below historical trends and several economies are likely to experience sharp slowdowns, notably in the eurozone, where sovereign risk is high. Collectively, advanced economies will slip into a synchronised slowdown as the loss in confidence spreads to consumers, bankers and investors.

Developing countries
The economic review anticipated better prospects for the developing nations. “The outlook is brighter for developing countries. External demand is weakening, but in most emerging economies, domestic demand should propel growth until the world economy becomes healthier. However, the outlook for developing countries is not risk-free. A few countries with especially open economies and dependence on demand in developed markets could struggle. Policy makers in developing countries generally have more flexibility than is available in the advanced world, meaning that the possibility of a soft landing is more likely than a hard one”. In emerging and developing economies, aggregate real growth will be 5.9 per cent in 2012 compared with 6.3 per cent in 2011. The slowdown can be partly attributed to the fact that many of these economies depend on exports to the developed world. Nevertheless, gains of income along with the rising middle class and growing trade between developing countries will ensure that most of these countries see solid gains in 2012. Developing countries will account for the bulk of world growth. A few emerging economies such as Belarus, Egypt, Iran, Pakistan, Venezuela and Vietnam could experience some overheating, but the underlying reasons will be country-specific rather than global change.

Pakistan
With rise in crude oil prices and recent depreciation in rupee and keeping in view the fact that gas and electricity prices have already been hiked, the central bank is to adopt a cautious approach to control the rising level of inflation especially, the food inflation. World Bank recent report titled, ‘Pakistan Country Partnership Strategy FY2010-2013’, has warned that Pakistan is expected to pay a price for leaving the International Monetary Fund (IMF) programme. It pointed out that in the presence of IMF programme, the GDP growth was expected at 4.5 per cent and in the absence of this programme, GDP growth is likely to decline to 3.5 per cent to 3.6 per cent for ongoing fiscal year 2011-12. In this context, a continued improvement in the macroeconomic situation will remain a challenge. Apart from its domestic problems, Pakistan is likely to have a double impact in a sense that global trade is projected to remain depressed and unemployment high for coming years in a large part of the world.