by Andrew Rosenbaum
ANKARA
Both consumers and businesses around the world put risk back on in 2014.
“It was a year of growing business, despite the economy, the political issues, and other hurdles,” says Huseyin Ozer, summing it all up. Ozer, the creator and head of the SOFRA chain of fine Turkish restaurants in London, says that he did not lack for hungry customers in 2014.
Surprisingly, consumer spending is up in all the developed markets. “Asian consumers seem to have shrugged off bad news, including, in Hong Kong, the long period of protest, and gone on buying,” comments Catherine So, who runs Groupon’s businesses in Hong Kong.
Consumer spending, across Asia, is up only about 4 percent, according to Nielsen statistics, but faster growth in some countries is balanced by slow growth in Japan.
In 2014, for the first time, consumers in Asia-Pacific will spend more on e-commerce purchases than those in North America, making it the largest regional e-commerce market in the world. This year alone, B2C e-commerce sales are expected to reach $525.2 billion in the region, compared with $482.6 billion in North America, according to e-Marketer.
In Europe, consumer spending rose sharply in the second half of the year, reaching a 12 percent increase in December from the previous year, according to Bloomberg News research. The U.K. lead the region, scoring 90 on the Nielsen confidence index in the second quarter of 2014 - 11 points higher than the same period last year and three points higher than the increase seen in Europe.
And in the U.S., economic growth of 5 percent in the third quarter of 2014 was fueled by rising consumer spending, according to the Bureau of Labor Statistics report in December. In the quarterly GDP report, the pace of consumption growth was revised upward a full percentage point, to 3.2 percent. While annual growth in the U.S. is expected to average out low around 2 percent, economists at the National Association for Business Economics are forecasting more than 3 percent growth for the coming year in the U.S.
Prospects for emerging markets are tough, however. Ratings agency Fitch forecasts large and persistent weaknesses for emerging markets in its Global Markets report released in December. The agency predicts EM growth will slow to 4 percent in 2014 from 4.7 percent in 2013, before edging up to 4.1 percent in 2015 and 4.5 percent in 2016.
Despite the slow growth in emerging markets last year, the growing middle class in developing countries is a key trend to watch, according to Deloitte Strategy and Operations expert Eamonn Kelly in a report released in May 2014.
“Perhaps the most surprising story has been the steadily growing wealth of huge numbers of previously very low-income consumers in Asia, Latin America, and Africa. This is a trend that will continue and grow in importance. It is projected that by 2020, 3.2 billion people will be ‘middle class,’ up from 1.8 billion in 2009. Almost none of this growth will come from advanced economies; instead, the increase will happen in Asia, Africa, and Latin America. As a rough (and prudent) estimate, a billion new people will be critical in shaping global demand over the next five years or so.”
But with this increase in well-heeled consumers come problems, as the World Economic Forum notes in its report on risks in 2014:
“Instabilities in an increasingly multipolar world: Changing demographics, growing middle classes and fiscal constraints will place increasing domestic demands on governments, deepening requirements for internal reform and shaping international relations. Set against the rise of regional powers, an era of greater economic pragmatism and national self-protection might increase inter-state friction and aggravate global governance,” the report warns.
A good example of how “instabilities increase in a multi-polar world comes from one of the most-discussed trends in 2014, global governance failure. According to the World Economic Forum report, concerns have grown about socio-economic risks such as income disparity, unemployment and fiscal crises. In addition to the socio-economic and environmental risks, cyber-attacks and the breakdown of critical information infrastructure are prominent risks. This arguably reflects the increasing digitization of economies and societies, where rising dependence on information and data, as well as the systems to analyze and use them, has made attacks more likely and their effects more impactful.
Analysts consider, in that context, the growing trend of digitization.
Digitization creates new opportunities because the work often involves bridging the gap between IT and the business, in which products and service value and revenues realized through technology.
“Eight out of ten executives we speak to in the U.S. say they’re planning or already undertaking digitization projects; digitization is now also big in several emerging markets, notably China,” said Fiona Czerniawska, an expert on the consulting sector who manages Source for Consulting in London, in an interview with AA.
So it’s perhaps not surprising that GE Capital is predicting that cybersecurity will figure as the top IT investment priority for both end-users and vendors in 2014. The unrelenting adoption of cloud, mobile and social media has significantly increased the complexity of how to protect systems, data, personal information and money. A growing number of increasingly sophisticated, successful and well-publicized hacker attacks in 2013 have heightened the urgency for vendors marketing the security attributes of their offerings. This trend will intensify, along with pressure to consolidate the fragmented security landscape.
Along with technology shocks, environment risks were a major worry for companies in 2014.
For Jack Plunkett, CEO of U.S.-based Plunkett Research, one such shock is the dramatic November—December, 2014 drop in oil and natural gas prices. “At Plunkett Research, we foresee relatively low energy prices through the end of 2016, unless there is serious oil market disruption from violence in the Middle East or a political meltdown in a major oil exporting nation.”
“This is creating significant changes in a wide variety of global industries, Plunkett said in an interview with AA.
“Transportation companies, such as airlines, shipping and trucking firms, will enjoy a significant boost to earnings as fuel costs drop. The same is true for chemicals companies, as their costs for petro-based row materials. Chemicals companies and manufacturers of many types will continue to rush to build new plants in the U.S. to gain access to very cheap natural gas.”
Plunkett predicts that reduced energy costs will provide a much needed boost to European economies, and that China and Japan will benefit significantly as they are among the world’s largest energy importers. The trend will benefit the automobile and travel industries, Plunkett adds.
With such complex opportunities and risks to challenge business in 2014, what can be expected in 2015? Most economists foresee an improved global economy driven by growth in the U.S., along with better business performance in the developed world.
Businesses have restructured in the crisis, and now have cash to spend on acquisitions or for new market entry.
In other words, it’s likely to be an even more ‘risk-on’ year.
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