Manufacturing Executive - September 2008 - (Page 6)

david humphrey/opinion Reading Mixed Signals he European market for industrial machinery has shown remarkable resiliency this year despite gathering clouds of economic uncertainty. Machine builders enjoyed a banner year in 2007 when Germany, the world’s largest exporter, posted whopping 13% growth in machine production — the highest single-year growth since 1969 — according to VDMA, an industrial consortium. Strong growth continued through the first half of 2008, despite an economic climate that, in the past, would have stopped growth short. What we are observing is the effect of globalization on the new world economic order. The most interesting aspect of this boom is the fact that it continued for so long even as the region’s traditional export markets in North America and Western Europe began to founder. The boom was fed by continuing strong demand for durable goods in Asian markets and robust growth in Eastern Europe. Like all booms, this one will end when several negative factors converge. By far the heaviest burden on growth is the increase in oil prices. Manufacturers are passing these costs on to consumers, resulting in the highest inflation in decades in many economies. In view of this and the resulting global financial crisis, manufacturers are lowering capital spending plans. Economists are speculating on what effect the U.S. recession will have on other economies. But this historic dependency has undergone fundamental changes in the last decade, most notably due to the rapid growth of Asian and Latin American markets. This phenomenon, called economic decoupling, has lowered dependence by many economies on the U.S. economy. German URTHER READING machine builders, for exARTICLES: ample, now export only ❏ Manufacturers’ Confidence in U.S. about 9% of their producEconomy Drops, a New MA Poll Reveals www.managingautomation.com/economy tion to the United States. ❏ U.S. Manufacturing Slowdown Another sign of the deBottoming Out, Report Finds coupling is the fact that www.managingautomation.com/economy2 European domestic con2008 t Emerging and globalised markets may be helping to offset the detrimental effects of America’s economic troubles on the rest of the world. sumption and capital spending in emerging markets, especially Eastern Europe, increased in 2007 just as U.S. consumer spending began to weaken. This contributed to Europe’s export surge of durable goods and made up partly for what would have been a more pronounced downturn in exports caused by a weakening U.S. economy. But the question remains: How will the imbalances in world economies be resolved? Here are three scenarios: Scenario #1 (pessimistic): The housing crisis and world financial crisis deepen in 2008, cutting into consumer spending in the U.S. and European economies and reducing demand for Asian exports. High energy costs persist due to strong emerging market demand, spurring inflation and lowering consumer purchasing power. Lower demand hurts Asian exports, reducing growth to single digits in the boom regions. Durable goods makers, especially in Europe, plunge into economic misery as the U.S. recession spreads to Europe. Scenario #2 (realistic): America’s ills dampen growth around the world, but don’t plunge other economies into recession as in the past. The financial crisis subsides, the U.S. Federal Reserve returns interest rates to “competitive” levels, and the dollar regains some of its lost value during 2008 and into 2009. Asian exports maintain their growth, supported by continued consumer demand in Europe and the emerging economies. Durable goods makers survive the crisis with a black eye. Scenario #3 (optimistic): The financial crisis is resolved more quickly than expected and consumer spending recovers in America even as the housing crisis leaves its shadow. Energy prices peak and level off slightly below current levels. The Federal Reserve raises interest rates and the European Central Bank maintains current rates, attracting investors back, and the dollar recovers. Durable goods makers, especially in Europe, breathe a sigh of relief as U.S. demand resumes while robust Asian growth continues largely unaffected. Time will tell which scenario takes hold. ■ David W. Humphrey is director of research, Europe, for ARC Advisory Group. 6 September Photo courtesy: ARC Advisory Group F http://www.managingautomation.com/economy http://www.managingautomation.com/economy2

Table of Contents Feed for the Digital Edition of Manufacturing Executive - September 2008

Manufacturing Executive - September 2008 Contents Editor's Letter Opinion By David Humphrey Starters Road Trip Part 1: Innovation or Efficiency? Part 2: The Innovation Gap Opinion By Lisa Bodell Special Report: Great Aspirations Supply Chain: The New Money Machine Product Design: Fruehauf Gets into High Gear with 3D CAD Business Intelligence: Food Distributor Turns Up the Heat on Manufacturers Software: Manufacturers Face SaaS Hurdles Dialogue Opinion By Pierfrancesco Manenti

Manufacturing Executive - September 2008

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