STORES Global Powers of Retailing 2009 - (Page 43) 2009 global powers of retailing India, having tightened monetary policy last year in order to quell inflation, now faces a slowdown in growth. This has led to a drop in equity prices, a drop in confidence, and a substantial decline in foreign investment, causing downward pressure on the currency. The central bank has lately loosened monetary policy in order to deal with the economic slowdown. The result will be economic slowdown but not recession. In the longer term, however, a number of problems will stifle strong growth. These include excessive regulation, poor infrastructure, and limits on the supply of high quality human capital. Still, India will likely grow more rapidly than its historical pattern, thereby fueling a rise in the number of middle class shoppers. Retailers will continue to benefit from this growth. Finally, Japan is again entering into a recession, spurred by the global slowdown as well as the lagged effects of tight monetary policy. The Bank of Japan is caught between a desire to ease the slowdown but, at the same time, avoid weakening the yen, which could lead to increased activity in the so-called carry trade. The latter could cause increased financial market volatility. For now, it appears unlikely that there will be acceleration in consumer spending in Japan, something needed to fuel stronger growth. future. In addition, monetary policymakers are caught between a rock and a hard place. On the one hand, rising inflation suggests a need to tighten monetary policy, especially as there is now downward pressure on the ruble. On the other hand, the recent crisis in credit conditions suggests the need to loosen monetary policy in order to maintain liquidity in the economy. The latter will prevail for now. Russia’s recovery, however, will depend on restoring investor confidence and a stabilization of oil prices. In the longer term, failure to invest in nonenergy industries could stifle or even de-stabilize Russia’s economy. Brazil Until recently, Brazil experienced relatively strong economic growth paired with single-digit inflation—a rare combination considering Brazil’s difficult history. The country benefited from sensible monetary and fiscal policies, a competitively valued currency, rising prices for commodity exports, and strong interest in BRIC countries from global investors. However, strong growth of commodity exports pushed up the value of the Brazilian currency and thereby hurt the competitiveness of exports. Lately, Brazil has seen an increase in inflation. At the same time, global commodity prices have started to decline, reducing export earnings. This decline has also pushed the currency down. While this might be beneficial to exporters of manufactured goods, a weak currency has the negative effect of increasing import prices and adding to inflation. Brazil’s policymakers are thus faced with an unfortunate combination of slowing growth and rising inflation. Brazil’s central bank recently responded by tightening monetary policy, opting to fight inflation early even at the cost of slower economic growth. For the near term, it appears that Brazil’s economic growth will indeed slow. Declining overseas demand and commodity prices as well as tightening monetary policy will see to that. Once the global economy eventually recovers, Brazil will probably resume moderate growth. Russia Russia has been riding high until recently. The soaring price of oil helped stimulate strong economic growth which, in turn, created a consumer spending boom. Retailers in Russia have seen rapid growth in the midst of a relatively benign regulatory environment. Foreign retailers, especially, have enjoyed the Russian market due to limited regulation, strong consumer demand, and relatively weak local competition. But lately the business environment has changed dramatically. First, the price of oil has dropped precipitously. And, although the price of oil is expected to be relatively high in the longer term, it could remain quite low for the next year or two given the weakness of the global economy. This will harm Russia’s export revenue and, therefore, its economic growth. Second, and simultaneously with the drop in oil, the global financial crisis emerged in late 2008. The result was that financial market participants began to anticipate a decline in Russia’s growth, causing a rapid decline in Russian equity prices. Unfortunately, some Russian businesses had secured loans using their equity as collateral. As equity prices declined, Russian banks faced serious capital losses. In the end, as in the United States and Europe, the Russian government had to intervene. Despite uncertainties, a general view of Russia’s outlook is emerging. With declining oil prices, rising inflation, and weak investment, it is reasonably safe to say that Russia’s economy will slow down in the near Top trends for retailers 2009 Cut costs As the global economy struggles, the world’s leading retailers are finding that profitability is far more challenging than in the recent past. Top-line growth is likely to be problematic for some time to come. Indeed, even after the global economy recovers, some retailers—especially those in the United States—will find that retail spending growth will be constrained by consumer balance sheets. www.deloitte.com/consumerbusiness STORES / January 2009 G43 http://www.deloitte.com/consumerbusiness
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