Released January 19, 2018 | SUGAR LAND
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Researched by Industrial Info Resources (Sugar Land, Texas)--Expansion of the middle-income bracket, particularly in Asia, will be one of the primary drivers of global economic growth this year, according to Shaheen Chohan, vice president of global analytics for Industrial Info. Chohan was one of the speakers at Industrial Info's 2018 Industrial Market Outlook, which was held January 17 in Houston, Texas.
Looking first to 2017, Chohan said the global macroeconomic situation last year was one that many economists have dubbed a "Goldilocks economy," one that was not too hot, nor too cold. The economy was shaped by low unemployment, low inflation and interest rates, and growing commodities markets. Even so, 2017 showed the highest level and fastest rate of global economic growth since 2011.
Looking to 2018, Chohan said the economy is likely to continue growing across the board, but the pace and rate of that growth will be more uncertain. The International Monetary Fund (IMF) expects to see robust growth in some of the emerging markets and probably less growth in the developed, more-mature markets.
"So what are the drivers we expect to see this year," asked Chohan. "Population growth is always a big component of that growth. More importantly, when I looked at some of the trends, it is really the rapid build-out of the middle income. There are currently about 3.4 billion middle income earners out there in the world at this moment, and they are spending a princely $35 trillion every year. There is an expectation the market will add 160 million to 170 million new middle income earners every year for the next five to seven years. That could add an additional $29 trillion of consumer-led spending."
Chohan cited The Brookings Institution, a Washington, D.C.-based think tank, for the middle income numbers. More than 88-90% of the middle income demographic will be located in Asia, according to The Brookings Institution, creating a strong pipeline for energy demand growth and investment opportunities.
Expectations are that an environment of low interest rates will continue this year, with at least three interest rate hikes set in the United States by the U.S. Federal Reserve. Also, the U.S. dollar will continue to weaken through the first quarter, having come down by about 10% at the end of last year. He noted this is good news for U.S. exporters as it makes their products comparatively cheaper, but not-so-good news for U.S. importers.
Of particular interest is how big multi-lateral or bilateral trade agreements play out this year, Chohan said, adding, "There is no overlooking the fact that the Eurozone is still going through something of a transition. And there is an awful lot of uncertainty as to what the Eurozone will look like, from the components of the countries that make up the Eurozone moving forward and into the future."
Meanwhile, China's "One-Belt, One-Road" initiative continues to move forward. First announced in 2013, the $1 trillion program will be implemented over multiple decades, with 70% of the funding earmarked to develop rail, port and road infrastructure. The goal of the program is to accelerate and enhance trade across 65 countries that make up a collective. China will benefit as demand increases for materials, equipment, engineering and construction services, Chohan said, adding, "This is very timely, it is timely as the Chinese economy continues to transition from a commodity and energy-intensive one into a service-oriented one. And there's no neglecting and no ignoring the fact that it will very clearly help China state its position as an economic superpower, certainly across Asia."
The big question is who else will benefit from the initiative, Chohan said.
"Interestingly, this comes at a time when we see the U.S. retrench and pull back from some of its trade deals, most notably the Trans Pacific Partnership, which in effect has left something of a void. And markets do not like voids. The reality is all small economies require one or more big economy with which to trade," Chohan said.
On the other hand, the U.S. has taken measures to incentivize and stimulate its domestic economy. One of these is the one-time lower tax rate on the repatriation of foreign earnings. The measure could translate into $250 billion worth of U.S.-taxed foreign earnings being repatriated back to the U.S., but could run as high as $338.8 billion, according to the Congressional Joint Committee on Taxation. And while it is very difficult to forecast how much of that amount would be used for capital spending, a recent survey by Bank of America Merrill Lynch across 302 corporations and chief executive officers gave some indications.
About 65% of the chief executives who were surveyed indicated they would use the repatriated cash to help lower and service existing debt. Forty-six percent indicated that they would possibly use the cash to initiate share repurchase programs; 42% indicated the money would be used to support further mergers and acquisitions (M&A) activity.
"And a modest, but I think a still very relevant 35%, indicated they would actually use some of that cash to spend on more capital investments. That is a very important and I think very positive outlook," Chohan said.
All this leads back to middle-income growth in Asia. "So the question is, how much do we think of those U.S. foreign earnings will actually be brought back [to the U.S.] and more importantly, how much of it will be spent versus how much do we think possibly be left in Asia to try to capitalize on the potential demand growth and investment growth out there in the Asian markets over the next two or three years," Chohan said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Looking first to 2017, Chohan said the global macroeconomic situation last year was one that many economists have dubbed a "Goldilocks economy," one that was not too hot, nor too cold. The economy was shaped by low unemployment, low inflation and interest rates, and growing commodities markets. Even so, 2017 showed the highest level and fastest rate of global economic growth since 2011.
Looking to 2018, Chohan said the economy is likely to continue growing across the board, but the pace and rate of that growth will be more uncertain. The International Monetary Fund (IMF) expects to see robust growth in some of the emerging markets and probably less growth in the developed, more-mature markets.
"So what are the drivers we expect to see this year," asked Chohan. "Population growth is always a big component of that growth. More importantly, when I looked at some of the trends, it is really the rapid build-out of the middle income. There are currently about 3.4 billion middle income earners out there in the world at this moment, and they are spending a princely $35 trillion every year. There is an expectation the market will add 160 million to 170 million new middle income earners every year for the next five to seven years. That could add an additional $29 trillion of consumer-led spending."
Chohan cited The Brookings Institution, a Washington, D.C.-based think tank, for the middle income numbers. More than 88-90% of the middle income demographic will be located in Asia, according to The Brookings Institution, creating a strong pipeline for energy demand growth and investment opportunities.
Expectations are that an environment of low interest rates will continue this year, with at least three interest rate hikes set in the United States by the U.S. Federal Reserve. Also, the U.S. dollar will continue to weaken through the first quarter, having come down by about 10% at the end of last year. He noted this is good news for U.S. exporters as it makes their products comparatively cheaper, but not-so-good news for U.S. importers.
Of particular interest is how big multi-lateral or bilateral trade agreements play out this year, Chohan said, adding, "There is no overlooking the fact that the Eurozone is still going through something of a transition. And there is an awful lot of uncertainty as to what the Eurozone will look like, from the components of the countries that make up the Eurozone moving forward and into the future."
Meanwhile, China's "One-Belt, One-Road" initiative continues to move forward. First announced in 2013, the $1 trillion program will be implemented over multiple decades, with 70% of the funding earmarked to develop rail, port and road infrastructure. The goal of the program is to accelerate and enhance trade across 65 countries that make up a collective. China will benefit as demand increases for materials, equipment, engineering and construction services, Chohan said, adding, "This is very timely, it is timely as the Chinese economy continues to transition from a commodity and energy-intensive one into a service-oriented one. And there's no neglecting and no ignoring the fact that it will very clearly help China state its position as an economic superpower, certainly across Asia."
The big question is who else will benefit from the initiative, Chohan said.
"Interestingly, this comes at a time when we see the U.S. retrench and pull back from some of its trade deals, most notably the Trans Pacific Partnership, which in effect has left something of a void. And markets do not like voids. The reality is all small economies require one or more big economy with which to trade," Chohan said.
On the other hand, the U.S. has taken measures to incentivize and stimulate its domestic economy. One of these is the one-time lower tax rate on the repatriation of foreign earnings. The measure could translate into $250 billion worth of U.S.-taxed foreign earnings being repatriated back to the U.S., but could run as high as $338.8 billion, according to the Congressional Joint Committee on Taxation. And while it is very difficult to forecast how much of that amount would be used for capital spending, a recent survey by Bank of America Merrill Lynch across 302 corporations and chief executive officers gave some indications.
About 65% of the chief executives who were surveyed indicated they would use the repatriated cash to help lower and service existing debt. Forty-six percent indicated that they would possibly use the cash to initiate share repurchase programs; 42% indicated the money would be used to support further mergers and acquisitions (M&A) activity.
"And a modest, but I think a still very relevant 35%, indicated they would actually use some of that cash to spend on more capital investments. That is a very important and I think very positive outlook," Chohan said.
All this leads back to middle-income growth in Asia. "So the question is, how much do we think of those U.S. foreign earnings will actually be brought back [to the U.S.] and more importantly, how much of it will be spent versus how much do we think possibly be left in Asia to try to capitalize on the potential demand growth and investment growth out there in the Asian markets over the next two or three years," Chohan said.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
