Last weekend, I made my annual trip to a privately held global economic forum. This year’s attendees featured a half dozen of the world’s leading global economists (including former Federal & European Union Policy advisors) and roughly a dozen leading money managers. Representatives came from financial capitals in Asia, Europe, and Canada, as well as New York, Boston and other major US cities.
For this entry of our blog, I want to share some of the major global economic themes I heard to help you decipher the potential economic impact on your energy budget and the energy markets worldwide. Keep in mind that this recap focuses on what was perceived as a general consensus (or close to one) among the economists and money managers.
No real surprises—and no real takeoff in the world economy either.
Overall, there were no significant surprises. The broad consensus is that the global economy is not expected to improve dramatically any time in the near future—and in fact, it may even be slowing down:
- China’s reported 8% GDP in question. China’s reports on exports don’t match up with import reports from the rest of the world. In fact, their GDP numbers could actually be as low as 6%, and one economist even projected them to be in the 5% range next year.
- Technology stock performance is disappointing across the board. The top 32 US technology companies generate $1 trillion in annual sales. Yet last quarter’s revenue performance was flat, and profits dipped by an average of 9%, driven largely by pricing pressures.
- Recent news from the Case Schiller Index is a bit misleading. Although the 20-city measurement index for real estate values has risen from its lows, it’s still down 20% from its 2006 high. In addition, 80% of the recent gains may have come from the rental property segment. These figures don’t suggest any significant increase in the wealth effect that would drive the US or global consumer economy. Furthermore, the market still lacks the presence of first-time home buyers and the concomitant impact they have through purchases of home appliances, furniture, and more.
- The stock market is at or near its peaks, but that’s not the whole story. The rise in stock prices is not based on fundamentals of growth or anticipated efficiency gains. In fact, corporations have already cut what they’ve been able to from the cost side and revenue increases are increasingly hard to come by. Instead, the real driver for increased stock prices is Federal monetary policy. Low interest rates are changing investor behavior and driving normally risk-averse investors into equities, artificially inflating prices.
- Party Politics are preventing progress in addressing the deficit issue. The end is not near for gridlock on Capitol Hill, creating a sustained environment of uncertainty for businesses. Until the general public gets fed up with the existing situation in Washington D.C., the split between the House and Senate will prevent the passage of any meaningful legislation and continue to keep business owners in their long-standing holding patterns.
The net takeaway for your energy budget.
In the face of this continued underlying uncertainty in the world economy, real accelerated economic expansion domestically or internationally does not appear to be a major threat at this time to your energy budget. In addition, the lack of global pressure on supply and pricing will not interfere with your energy management goals of achieving budget certainty and/or maximizing savings.