Economic Data Show Further Improvement in Global Outlook
The global economic outlook brightened further in December, as economic data from most regions indicated sustained, though moderate, improvement in both domestic and external demand. Europe showed further signs of stabilization in the financial markets, as bond yields of the most troubled countries continued to decline in response to the earlier assurance by the European Central Bank (ECB) to buy unlimited quantities of sovereign bonds. Increased willingness by the ECB and the IMF to allow the troubled European countries to delay some of the earlier promised fiscal austerity measures is expected to help stabilize these economies that have seen significant declines in output. Towards the end of the month, the agreement reached by U.S. lawmakers to avoid the fiscal cliff lifted optimism as healthier growth in the world’s largest economy would appreciably benefit the rest of the world.
Global equity prices reacted very positively to the improved economic outlook and ended the month with robust gains. Surveys indicated improvement in manufacturing activity and business sentiment in several leading economies during the month, on increased confidence about the sustained consumer demand growth in major markets. However, manufacturing activity declined further during the month in the Euro-zone and Japan. As exports from the country also continue to decline, the new Japanese government has announced a more than $110 billion fiscal stimulus package to boost domestic demand. Export trends from the rest of Asia and Latin America were largely positive, with the exception of Korea which saw an unexpected drop in export shipments in December. The decline in U.S. consumer sentiment indicators towards the end of the month is now considered to be a short-term reaction to the anticipated increase in payroll taxes from 2013. Low energy prices and further improvement in labor market conditions are expected to support consumer confidence in the U.S. and other countries. At the same time, monetary and fiscal policies remain favorable to demand growth across all regions.
Global industry spotlight for the month: Telecom
The operational environment has become healthier for the leading telecom services providers across most regions, except Europe where the ongoing recession has restrained discretionary spending. In most developed countries, the continuous roll out of cellular phones that are more powerful and have more features have kept consumer interest tied to a predictable cycle of product upgrades. Demand for faster and more reliable data services continue to expand, allowing the market leaders to maintain their competitive edge with superior technology and a wider network reach. In markets such as the U.S., more than 50 percent of users have already switched to smart phones. In the emerging markets, increased availability of cheaper smart phones with fewer features is encouraging more customers to trade up. This trend improves the revenue outlook for service providers as monthly plans for smart phones are typically more expensive.
However, service providers now have to continuously invest to ensure that their networks are capable of handling the latest data and voice transmission standards and protocols. While leading players in the developed countries have mostly completed their network upgrades for offering 4G services, the faster pace of technology development has made the equipment upgrade cycle shorter and service providers might have to start investing again within a few years. Operators in the developing countries are in various stages of network upgrades as the market for high end services are relatively limited due to higher costs. In addition, shortage of available spectrum bandwidth could be another challenge for operators in major markets. Lack of policy clarity and regulatory shortcomings make this a greater risk for operators in emerging countries.
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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.
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