Hamish McRae: Ad man is worried about four major uncertainties in the world economy – and if anyone knows, he does

It is better for us if business leaders are realistic rather than over-optimistic
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The Independent Online

Advertising is the classic lead indicator. It tells you precisely, maybe brutally, what businesses think about future demand, for you don't advertise unless you think that ad spend will be rewarded by demand for the product. So when Sir Martin Sorrell, head of the world's largest advertising network, says that demand ground to a halt last month, we should sit up and take notice.

His particular concern, after talking with the bosses of major companies, was that "people have just become very, very cautious". He goes on to cite the four potential shocks that might hit the world economy in the coming months: the problems in the eurozone, volatility in the Middle East, the slowdown in the Chinese economy, and the US fiscal deficit.

They are the leading candidates that might derail what is already a slowing global recovery. But they are very different in their nature and potential impact.

For example, the problems of the eurozone are widely appreciated, and their economic impact already evident. The uncertainty is over the policy response, with the assumption being that the EU will continue to muddle through. If the eurozone were to break up, that would be a huge blow to confidence in Europe, but the eurozone is less than 20 per cent of global GDP, and most multinationals have already made contingency planning for such an outcome.

Volatility in the Middle East would have a direct impact on the world economy if it led to disruption in oil supplies. A number of calculations have been made about the consequences, for example, of the Straits of Hormuz being shut for a few weeks. The impact would be big, for it would lead to a spike in the oil price, but global energy markets are pretty resilient.

A sharper-than-expected Chinese slowdown would have another set of effects. It would cut demand for imports, and that would affect exporters of raw materials, but it would equally cut commodity prices and maybe the oil price. So there could be benefits for the rest of us.

Finally, the US deficit. It will eventually need to be tackled; what we don't know is when and how. It may be that the world has been lulled into a false calm by this period of very low interest rates, but the idea of US default is beyond most people's imagination. It is hard to see another great inflation, as in the 1970s.

Business leaders are right to be worried. The threats noted by Sir Martin are real. But having a realistic business community is surely better than an over-optimistic one – better, that is, for the rest of us. Let them do the worrying.