WorldCity Business Magazine

The Year Ahead

by WC

Three analysts articulate projections for the year. While the overall picture continues to be positive for the region, there are threats – among them the China boogeyman and the new axis of evil – Bolivia and Venezuela.

It is fitting that January named after the Roman god of gates and doorways Janus should stage the opener of this year’s Connections break- fast series in Miami portal to the Americas.

And in reviewing the global economic outlook, the three panelists at the Jan. 31 event at the Hotel Sofitel, were like the deity, looking both backward and forward in order to predict trends.

The trio considered a range of issues starting with possible spoilers for trade in 2007.

Jerry Haar, professor of management and international business at Florida International University, warned that although things augured well globally, regionally and locally he said worldwide GDP would grow in the order of 3.6 percent and up to 2.75 percent in the United States we were on the cusp of a housing and automobile slump with Miami leading San Diego, Washington, D.C., Boston and Las Vegas toward decline.

Haar argued that increased mortgage rates spelled impending doom over the next three years.

“I, like a lot of people, use my Visa card to pay my credit card bill,” he joked. “We’ll all be in negative savings, up to our eyeballs.”

As the population depletes its reserves, it would bode poorly for retirement, he said.

“The baby boomers have no money to retire,” Haar said. “We’ll all need to find somewhere in the mountains in Nicaragua.”

InfoAmericas president John Price echoed some of those sentiments, emphasizing that the golden years that the U.S. have enjoyed may be over.

“This country will be a drag on the global economy,” Price shared. “There will be a tectonic shift. That will be reflected in developing nations which will outperform the U.S. If you’re not betting on the emerging markets, you should now.”

With the prospect of the Lunar New Year which fell on Feb. 18 on the horizon, the experts also pondered what was in the stars for China.

“For 25 years, the country has witnessed as average 8 to 12 percent growth a year,” Price said. “It will happen again. China has a high savings rate. The country is saving and reinvesting but, at the moment, the Chinese consumers aren’t benefiting from all the wealth. Over the next five years, consumers will be a larger driver than exports. Imports will outstrip exports in the range of 5 to 10 percent.

He said that to fuel its exponential growth, China would look to buy resource companies abroad, particularly suppliers of steel, copper and cement, to shore up its burgeoning construction sector. Companies in Africa and Latin America are probably targets for investment.

“The country is about to be liberalized,” Price said, “opening up a tap of foreign investors. This will benefit the Latin American economy, particularly Brazil and Chile.”

The region is set to perform well, said Chris Sabatini, senior director of policy at the Americas Society and Council of the Americas, but he said the figures would be skewed by a few top performers.

“Latin American prospects are pretty good,” he said, “but that is largely spurred by Venezuela, Argentina and Peru. They are the big drivers of growth. Remove them and it is more modest growth an average of 4 percent against the 9.6 per- cent to be seen in China. Don’t be fooled by growth. It is still overwhelmingly tied to primary products. Take Peru. Sixty-two percent of exports come from primary products. Compare that with the U.S. where it is in the order of 25 percent or China where it is 10 percent. It provides a huge potential for risk.”

Australia and Canada both rely heavily on primary exports, Price interjected, emphasizing that they did not experience the same boom/bust cycles that Latin American countries had done.

“The countries keep $1.2 trillion outside the region,” he said, “and then they are borrowing. Unless, they find other ways of earning dollars, the writing is on the wall. Mexico, Panama and Costa Rica don’t depend on resources. Mexico, for example, sells branded products while Panama’s focus is logistics and transportation. Brazil is exporting less and less. Its never going to get out of the boom/bust cycle.”

“I’m glad John that you’re here,” said Haar. “It means I’m not the only Darth Vader forecaster. Commodities are being oversold. Many people are spooked about doing business in Brazil. Even the German Shepherds walk in twos and threes.”

Price said that changes in the economic landscape presented an opportunity for reflection and renewal. By way of example, he highlighted how Mexico had lost 300,000 jobs to China in the period 2000 to 2005.

“It’s a human nature issue,” he contended. “Unless things are going badly, we don’t change ourselves. In Mexico, they talk about the China boogeyman not the U.S. boogeyman.”

President Felipe Calderon, said Price, had tried to clean up Mexico’s act in response. The Mexican leader has released 7,000 personnel to tackle the drug cartels and, in the business arena, he is disassembling monopolies and attacking cronyism.

The panel agreed that the U.S. had dropped the ball as far as trade pacts particularly the Free Trade Area of the Americas were concerned.

“Congressional Democrats and Republicans are going to be counting the cost of turning these free trade agreements down,” said Sabatini.

“There is an increasing groundswell of disgust among the Colombians and the Peruvians,” Price said. “The U.S. is walking away from the most pro-American trade deal.”

In certain quarters, the FTAAis a dirty word.

“The number of free trade Democrats that there are,” said Haar, “can hold a convention in a restroom stall.”

If Mexico worries about China, then the rest of the region has its eyes on the leftwing pockets in its midst, Bolivia and Venezuela, in particular.

“This is the new axis of evil,” said Sabatini. “They would be the last chosen for the basketball teams. The risk is very real and could expand. Peru and Mexico dodged their own bullets in elections. Mexican democracy will be under siege for the next five years.”

If Bolivia breaks apart, it will affect the borders of neighboring countries.

“He’s provided a nail in the coffin to the region,” said Haar of Venezuelan President Hugo Chavez. “Now, he has this Mini-me (President Evo Morales) in Bolivia.” WC