19. The economy of the developed world is growing steadily, with only brief interruptions.
When the United States catches a cold, the rest of the world gets pneumonia, or so economists used to say. Early in 2009, the United States has pneumonia. Home prices remain in free-fall, and the credit market has collapsed. In December, jobs were disappearing at a rate of more than 1 million every two weeks. Consumer confidence is plummeting. Most of the world is in recession. It turns out that 2008 and some of 2009 are one of the interruptions contemplated in the trend.
Looking abroad, we can see effects of America’s problems. The entire European Union is in recession. China, Australia, India, Japan, and Russia are in or near recession. In all, the economies of the world seem a lot less healthy than they did a few months ago.
Throughout the world, governments are scrambling to shore up lending institutions, stem the tide of foreclosures, restore the flow of credit, and provide jobs for the newly unemployed. These efforts will continue through 2009.
At that point, global economic growth will resume its accustomed rate, a bit more than 5 percent per year as of 2007.
Assessment: These trends have been revised many times since they were first codified in the late 1980s. Some trends have fallen off the list as they matured or as circumstances came along to change them. Others have been added as they were recognized. This trend has remained a constant, and with each revision its effective period has been extended. To invalidate this trend would take a catastrophe on the order of the loss of Middle Eastern oil from the Western economies. No such dramatic reversal of global fortune can be foreseen.
Implications: New growth among all these trading partners should create a “benevolent cycle,” in which the health of each partner helps to ensure the continued health of the rest at least through 2014. According to the World Bank, global growth is expected should come in at 2.5 percent in 2008, but only 0.9 percent in 2009, rebounding to 3 percent in 2010.
China has developed into an effective counterbalance for the U.S. economy. When America hits hard times, China can help to keep the world from following into recession. We first saw this in the post 9/11 crunch in the United States. This should make the global economy much more stable for so long as China remains a vibrant trading nation.
Any interruptions in economic growth should be relatively short-lived. By 2012 or so, India will expand faster than any other market in the world, with China falling into a close second place.
In the long run, the newly capitalist lands of the former Soviet Union should be among the fastest growing new markets, particularly if the oil industries of Kazakhstan and its neighbors, Kyrgyzstan and Uzbekistan, can be developed promptly. Labor markets will remain tight, particularly in skilled fields. This calls for new creativity in recruiting, benefits, and perks, especially profit sharing. This hypercompetitive business environment demands new emphasis on rewarding speed, creativity, and innovation within the workforce.
Implications for hospitality and travel: American business will be cutting back ruthlessly in 2008 and early 2009, allowing only the most necessary trips. All but the most comfortable vacationers will stay close to home until they are convinced the recession is over and their jobs are secure. We expect to see air travel drop by 15 percent or more in 2008 and recover slowly through 2010. At the same time, consumers will be cutting back from high-end hotels to mid-priced chains and from mid-priced to economy; eating at home or at fast-food outlets rather than pricier restaurants; and—for those who still vacation abroad—favoring cheap destinations such as Mexico, Portugal, and Eastern Europe over Paris and London.
Only the high end of the cruise market will be relatively unaffected: The wealthy remain able to pay for luxuries even in the worst of economic times, and 2008 will be as mild a downturn as the U.S. could hope for.
The flip side is that the euro and other world currencies buy much more in the States than they do at home. Europeans can hop on a plane for New York or Miami, shop ‘til they drop— their packages, at least—enjoy a few nights out, and return home carrying loot they could not have paid for at local prices. Many of them are doing so. These bargain hunters are bringing needed profits to the American hospitality and travel industry. At the same time, they are helping to maintain demand in the cruise market and in traditional European destinations.
By late 2009, most of these aberrations will pass, and Americans again will be contributing their accustomed share to the global hospitality and travel markets.
As formerly poor residents of China and India grow increasingly prosperous, they too will fan out across the world as international tourists. By 2020, 100 million Chinese and 50 million Indians are expected to vacation in other lands each year. Accommodating them will be a continuing challenge for hospitality and travel businesses.
20. The global economy is growing more integrated.
By some counts, only half of the world’s one hundred largest economies are nation-states. The rest are multinational corporations. In the European Union, relaxation of border and capital controls and the adoption of a common currency and uniform product standards continue to make it easier for companies to distribute products and support functions throughout the Continent. The Internet also brings manufacturers effectively closer to remote suppliers and customers. Companies are increasingly farming out high-cost, low-payoff secondary functions to suppliers, service firms, and consultants, many of them located in other countries. Companies in high-wage countries also are outsourcing management and service jobs to low-wage countries. An estimated 3.3 million U.S. jobs are expected to migrate to India and China by 2015. Some 40 million jobs are believed vulnerable to outsourcing.