Abolfathi said this index lags behind
and even if it falters further, should
begin to rise rapidly sometime in the
next six months.
However, all of the indices indicate
that, while the world is not in a depression, this recession “is the worst since
1947,” Abolfathi said.
Abolfathi also said his optimistic
short-term outlook is based on recovery drivers that are already in action
such as: massive injections of money
from government programs, inventory
corrections that are winding down and
should eventually create demand, and
pent-up demand from financial
investors who have built up cash for
the past two years. He also said that
market participants and economists
have been wrong about the strength of
the recovery—that numbers have
exceeded expectations consistently.
However, he cautioned that it was the
advanced economies of the world that
created the crisis (not emerging markets); and unless consumers begin to
spend in those advanced economies,
the world may see more trouble.
FORECAST: Most countries will see a
“V-shaped” economic recovery, but it
will take four to five years to get back to
peak levels.
CHINA
Weakened, but the
Power Remains
The year 2008 was “a year of great
change” in China with unbelievable
growth and double-digit GDP growth in
the first part of the year. By the second
half, however, much of that growth “died
off completely,” and as a result, many
plants shut their doors, according to Bob
Tellier, divisional vice president, True
Value Company.
Still, China has great potential as
well as a government committed to manufacturing and a potential workforce and
consumer base not yet fully tapped.
The Chinese economy followed the
U.S. in tumbling, and the Chinese yuan’s
value followed closely the U.S. dollar.
However, the yuan’s value stabilized due
to manipulation by the country’s central
bank, which saved that country from the
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fate of some other Asian areas where the
economy is not as tightly controlled, Tellier said. Most recently, the credit spigot
in China has been reopened, and commodity prices have stabilized.
In the manufacturing sector, one situation that has complicated the picture is
a labor law passed in 2007 that went
into effect Jan. 1, 2008. The law
requires a written contract for all
employees, who are usually guaranteed
two years of employment. That law put
many companies out of business, he said.
Another development that has affected
manufacturing is VAT rebates, which are
essentially sales taxes on raw goods factories buy that are rebated if those goods
are used to make products for export.
Up until recently, the government has
not wielded this tool. But in the last few
years, it has started giving more back to
encourage industry, Tellier explained.
The country is very aggressive in its
buying of raw materials and supplies,
especially those related to steel, Tellier
said. At the same time, the domestic
market for goods is still small, so exporting will remain crucial. And the government is committed to building up its
infrastructure, having pledged $560 billion to that sector.
As a result of all these developments,
it’s clear China “will be a big part of the
supply chain or a very large competitor,”
Tellier said.
Those who want to do business there
need to be aware that “a lot happens
below the radar,” Tellier said. Sourcing in
China requires committing to a presence
there and learning the business environment, which Tellier said is very-much
based on establishing relationships. “As a
westerner, you cannot impose your norms
on them, you have to react and adapt to
their realities,” he said.
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FORECAST: The government’s commitment to the manufacturing sector, the
stimulus package aimed at improving the
infrastructure, manipulation of currency
and rebates, and the country’s aggressive
acquisition of raw materials and suppliers mean the country will remain a
manufacturing powerhouse. VM
Genilee Parente is managing editor and Judy Tibbs
is editor-in-chief of Valve Magazine.
