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1999: Year of the Rabbit or Year of the Bear?

As 1998 came to a close, the global economic news was getting worse. The U.S. economy, in its 93rd month of growth, was standing apart-with an estimated annual GDP growth of 4 percent and an annual stock market gain of 16 percent. But growth projections for the rest of the world kept being revised downward.In …

As 1998 came to a close, the global economic news was getting worse. The U.S. economy, in its 93rd month of growth, was standing apart-with an estimated annual GDP growth of 4 percent and an annual stock market gain of 16 percent. But growth projections for the rest of the world kept being revised downward.

In October, the International Monetary Fund pegged 1999 global economic growth at 2.5 percent-not bad overall. But this figure masks significant regional differences and contains much downside risk, if the IMF’s restructuring and aid plans failed in key countries, as they so often seem to. In December, the IMF was back, revising its forecast downward to 2.2 percent and warning that “world growth could easily be cut a further percentage point in 1999 -and extend what would then effectively become an global recession at least until 2000.”

That same month, the World Bank predicted 1999 global economic growth of a mere 1.9 percent. The World Bank predicts that 33 countries will see a drop in per capita income, including Brazil, Indonesia, and Russia. And such official pessimism was mirrored in private surveys. The more than 11,000 executives in 18 countries surveyed by Dun & Bradstreet were less optimistic about business conditions in 1998′s fourth quarter than its third quarter.

And these reports were issued before the collapse of Brazil‘s “Real Plan,” and the devaluation of its currency in January 1999. Brazil has long been considered the key element to keeping Latin America healthy, and its sickness is cause for global concern, although the immediate response of markets were positive.

So are we facing a global recession in 1999, or will this be the year that many emerging economies hit bottom and turn it around? In December 1998, Chief Executive talked with 13 CEOs and a Senator to get their projections on the 1999s global economy.


 

Kenneth L.Lay

Chairman and CEO

Enron

Houston, TX

 

I am reasonably optimistic about the global economy. Certainly we are going to have slower growth for the next year or so than we probably experienced two years ago. But the U.S. economy will remain reasonably strong, and with some reasonable growth in Europe and some of the other economies around the world stabilizing, I think we will work our way around this and hopefully be back to some pretty good growth by the year 2000.

I like the fact that the Europeans have had a unified rate cut. From the standpoint of the U.S., I would like to see an across the board tax cut in 1999.


Eric Benhamou

Chairman and CEO

3Com

San Jose, CA

While the current economic downturn in Asia is the most serious in decades, signs of recovery are emerging. With some of the largest markets in the world, Asia remains an alluring and potentially lucrative place to do business for most multinationals.

Latin America will continue to suffer the ripple effect of the Asia crisis and will expect to experience an economic slowdown in 1999. However, trade is expected to continue to grow and foreign investment will only decline at a minimum.

The future for high-technology industries looks particularly strong as governments across these emerging regions look to build technology infrastructure to supplement economic reform as a key driver of renewed growth and sustainable recovery.


Domenico De Sole

President and CEO

Gucci Group NV

Florence, Italy

I was one of the first people to foresee that there were real problems in Asia. My sense now is that 1999 will be difficult, but will improve towards the end. Overall, in the long term, I continue to be very optimistic.

Gucci has done well during the Asian recession. We recognized the problem quickly, and became more careful and disciplined about costs. We had a very strong commitment to local business. Over the last year, we have acquired franchises in Korea, Thailand, and Guam and we expanded operations in Japan.

What is needed now in terms of U.S. economic policy is continuity.


Frank Baxter

Chairman and CEO

Jefferies Group

Los Angles, CA

There little correlation between economic forecasts and what ultimately happens. Reality is just too dynamic and non- linear to stand still long enough for a forecaster to take a good forward snapshot.

People everywhere are adapting to two billion inhabitants becoming capitalists since the iron curtain’s demise and to the democratization of economic information resulting from technology progress. It shouldn’t be surprising that we experience tremendous volatility during the learning and adapting process.

The last thing we need is top down intervention. A positive act would be a U.S. across the board tax cut to keep the engine driving the world economy moving.


Lawrence Bossidy

Chairman and CEO

AlliedSignal

Morristown, NJ

I am not of the mind that there’s a worldwide recession coming. Obviously there are troubles in Asia, including the inability of the Japanese to reflate their economy. Latin America could be trouble, particularly Brazil. On the other hand, I don’t see that taking the world into a recession. I think you will find that the U.S. economy, because of some of these pressures, will not grow as fast in 1999 as it did in 1998. Specifically, you can see our exports begin to soften and our imports rising. The worst result, in terms of the U.S. economy, would be a narrowing of the growth rate of the GDP.


Alex J. Mandl

Chairman and CEO

Teligent

Vienna, VA

The economic problems facing Russia are very deep-rooted and most likely will take a long time to sort out.

The Asia problem is, in my view, very different. Even though there are some underlying economic problems in some key Asians counties, there’s an overall robustness in the region’s economic environment. I think most of the risk there is behind us.

Brazil is something we need to keep an eye on. It’s not clear to me which way it’s going to go.

As a nation, I think the U.S., without overreaching, needs to extend support and liquidity where that will make a difference. And Brazil might be an example of where our support could make a difference.


Senator Connie Mack

Chairman, Joint Economic

Committee (R-Florida)

As demonstrated by the recent stock market fluctuations, America‘s economic stability is influenced by the performance of other major economic centers such as Europe, Latin America, and Southeast Asia. Long-term U.S. leadership to address global economic turmoil must be a top priority.

World leaders are now talking about increasing the supervision of financial institutions, standardizing accounting; procedures, and increasing transparency. These are all worthwhile – reforms. However, long-term, price Stability in emerging markets must be included in this agenda. Without it, long-term investment becomes impossible and these markets are consigned to permanent second-class status-always emerging, never emerged.  Absent dependable monetary policies focused on price stability, emerging markets will not be able to sustain increases in their people’s standards of living.


Craig Muhlhauser

President

Visteon Automotive Systems

Dearborn, MI

We think the threat of global recession is real. Both Asia and South America entered recessions this year and the financial markets have been impacted by the Russian ruble devaluation and debt default.

But good economic fundamentals coupled with policy flexibility are likely to prevent these recessions from spreading to North America and Europe.

I think we should keep a hands off policy. So many of the economies in emerging markets are based on different fundamentals that I think when people from IMF get involved they tend to undermine some of the basic free market principles.


Claudio Osorio

Chairman, President and CEO

CHS Electronics Miami, FL

I’m cautiously optimistic about the global economy. I see a very strong European economy. There are some very dark clouds over South America. These problems are driven by big deficits, high unemployment, and large foreign debt. I think it all depends on the amount of support that these countries receive from the West.

I do believe that there are threats from around the world from a macroeconomic point of view. But the world is so interconnected today that it’s my personal belief that the governments of the wealthiest nations will not allow any of these situations to get out of control.


J. Willard Marriott

Chairman and CEO            

Marriott International       

Bethesda, MD

We have a positive outlook for our company. We have strong brands and we are looking for an outstanding year in 1999. Our business on the books is very strong and we are continuing our growth developing new units around the world. So we continue to be bullish on the long term prospects for the United States, Europe, Latin America, and eventually think that Asia will turn the corner.


Wick Simmons

President and CEO

Prudential Securities

New York, NY

I’m optimistic about the global economy. It looks as though the U.S. market and Europe probably can carry the rest of the world’s output, at least for the next year and a half while we let some of the emerging markets begin to catch up. And the rate drops all around the globe show that central banks are going to attempt to create enough liquidity worldwide to finance it.

My guess is that unless things get a lot worse, that increase in liquidity will help the world avoid any kind of a major recession next year.


William Stavropoulos

President and CEO

Dow Chemical

Midland, MI

I don’t think anyone believes the economic cycle should be consigned to the dustbin of history.

But having said that, the globalization of capital, commerce and technology is challenging some long-standing orthodoxies. For several years people have been predicting a slowdown in the U.S. economy on the orthodoxy that robust growth could not be maintained concurrent with low unemployment and low inflation-yet that is exactly what we’ve had.

The conventional wisdom is that this year there will be a slowdown in the U.S., Europe will be flat, and East Asia will bottom out, but to paraphrase Yogi Berra, predicting the future isn’t what it used to be, particularly the economic future.


John W. Snow

Chairman and CEO

CSX Corporation Richmond, VA

While we are looking for modest growth in the U.S. economy 1999, uncertainty clouds the picture. Major global, industrial customers we talk to are less than sanguine, pointing to difficulties in Asia and Latin America as wild cards.

Given the global economic situation, balance of trade deficits will continue to be a problem. I’m hopeful that the Fed will stay on course to help ensure full employment and keep a watchful eye to prevent significant inflation. Business managers must continue to be creative and find ways to further enhance productivity to offset labor and other cost increases.


Maurice Tempelsman

Chairman

Lazare Kaplan International

New York, NY

I’m reasonably optimistic about the global economy. As markets always do, this is a readjustment, but the fundamentals and the direction remain sound.

Our government’s policy has been pretty sound. One is to do everything that you can to maintain liquidity in our domestic economy because we are the world’s largest consumers. Our capacity to absorb imports has kept a very large portion of developing countries going. We have been very wise and cautious supporting the international institutions like the IMF and the World Bank. They’re perfect but the world would be worse off without them.  

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