Clash of views on global economy kicks off world forum
Friday 30 January 1998
But their optimistic view of the world contrasted with that of a number of the economists and market pundits speaking at the World Economic Forum annual meeting, which opened in Swiss Alpine resort of Davos yesterday. Jeremy Warner reports.
The upbeat message was the main finding of what is claimed to be the first survey of its kind into the concerns of leading executives from around the world.
The conference attracts some 2,000 businessmen, bankers, economists and politicians from around the world and Helmut Kohl, the German Chancellor, is due to give the opening address.
One economist gave warning of some of the most fiercely difficult, competitive, and oppressive trading conditions ever as a result of the economic crisis in the Far East.
Ken Courtis, Deutsche Bank's chief economist and strategist for Asia and Japan, said that to think all the bad news is now over was almost certainly wrong. He believed that the present abatement in the crisis might be just the calm before a fresh outbreak of the storm.
"We are about to enter one of the most competitive global economic environments seen in recent times," he predicted.
With their devalued currencies, the Asian economies were set to become the most aggressive exporters in the world, he said.
Their main target was bound to be the US with its strong economy and currency. As a result the US trade deficit was likely to see a sharp deterioration both this year and next.
It was questionable whether the US would be prepared to play the role of Keynesian powerhouse to the rest of the world, he contended.
The Institute for International Affairs aired fresh forecasts at Davos, suggesting the US trade deficit would deteriorate by $50bn in dollar terms as a result of the Asian turmoil and double that in real terms. A similar reduction in the European Union's surplus was also forecast.
Already there are signs of a Far Eastern export boom, with both Korea and Thailand experiencing some of their highest trade surpluses ever as a result of the devaluation in their currencies.
A leading Japanese economist, meanwhile, called on the Japanese government to take immediate reflationary measures to counter what he saw as the biggest threat to economic prosperity since the 1930s.
Haruo Shimada, professor of economics at Keio University, said the gravity of the crisis called for a complete change of policy by the Japanese government. "They won't do it because they fear they will lose control of the budget, but if our children and grandchildren have to bear the burden, it is a price worth paying.''
Fred Bergsten, director of the Institute for International Economics, said that growth across Asia as a whole, including Japan, China and India, could drop to zero this year and next. Several other previously high growth countries such as Brazil and Russia might also experience zero growth or less. "Global prospects must be scaled back sharply as a result of the Asian crisis," he said.
Mr Bergsten thought the prospect of a turnround in Japanese policy to reverse its growing trade surplus and help pull the region out of recession was remote.
Some other economists were more sanguine about the impact of the crisis on the West. Horst Siebert, president of the Kiel Institute of World Economics in Germany, said that because the crisis-hit economies accounted for only 3.5 per cent of world GDP, their effect on the rest of the world would be limited. His own view was that it would knock only two-tenths of a percentage point off growth, which would remain robust in Europe and the US.
The survey of chief executives, conducted by Price Waterhouse among 377 of the world's leading corporations, found that fully one-fifth of chief executives believe electronic commerce will completely reshape competition in their industries, with established players perhaps giving way to upstarts. Interestingly, there was a preponderance of European chief executives rather than North American who thought this.
One of the biggest changes identified by the survey is in the way chief executives prioritise their time. Nearly half said they devoted more of their energies into reshaping corporate culture and motivating employees than in monitoring the financial position of the company or liaising with customers. One-third of those surveyed said they were "extremely optimistic" about growth prospects for the next three years. Some 62 per cent were "somewhat optimistic" and only 5 per cent were pessimistic.
Launching the survey, James Schiro, chairman of Price Waterhouse USA, conceded that the findings might be regarded as suspect since chief executives were surveyed before the full crisis in the Far East emerged.
He believed that the extraordinary level of optimism among big "global" corporations still held good. "It's a great time to be a global chief executive officer," he declared.
However, only 6 per cent of those surveyed claimed to have a fully integrated corporate culture which crosses national boundaries and values. The creation of such a unifying force among employees is regarded as a key objective by most chief executives, the survey found.
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