Q7.
Effect
of
Current
Economic
Meltdown
on
International
Business
1. Slower global growth: Global growth stood at 5 percent in 2007, but the IMF expects world growth to slow to 3 percent in 2009 - 0.9 percentage points lower than forecasted in July 2008. 2. Economic contraction in some countries: In G7 countries except for the United States and Canada, GDP growth was slower in Q2 of 2008 compared to Q1. Three major European economies (Italy, France and Germany) experienced negative GDP growth in Q2, and forecasts are for a continued decline in Q3. The IMF forecasts around 0 percent growth for advanced economies in 2009. 3. Depth of slowdown: It is observed that economic slowdowns, preceded by financial stress tend to be more severe. Although employment has contracted in several countries in recent months, it has not been as severe as that during 1990-91. 4. Financing challenges for governments: State and local governments may be faced with financial crisis. Even administrative costs may be difficult to come by. The governments would be hard pressed for funds for guarantees and development work. For e.g. In the case of Iceland the banking sector has assets of around 300% of GDP, something no government could ever guarantee, at least not on a short-term basis. 5. Rising unemployment: According to IMF, unemployment in the advanced economies will rise from 5.7 percent in 2008 to 6.5 percent in 2009. 6. Large employment losses in sectors: Some sectors like construction, real estate services will experience disproportionate employment declines. In addition there will be significant job losses in the financial sector. 7. Reduced world trade volume: According to the IMF, the world trade will grow only at the rate of 1.9% as against the earlier estimate of 4.1% for 2009. A drop in exports, as well as capital inflow, may trigger a falloff in investments. 8. Rising income insecurity and disproportionate impact on low-income groups: As stock markets around the world have eroded trillions of dollars in wealth and rolled back some of the investment gains of the past 5 years, the investment and retirement savings of many individuals have lost significant value. There is a risk that low-income countries and lower-income groups within countries will bear the brunt of challenges, as ³the most poor are the most defenseless,´ says World Bank President Robert Zoellick. 9. Return to Tariff and Non-Tariff Barriers: Developed economies in order to ward off unemployment and financial crisis may erect barriers to free trade. This might start a local business environment. For e.g. President-elect Barrack Obama has already announced his intention to reduce outsourcing from US by 30%.
10. Surplus Production Capacities: In line with demand destruction, many branded products may face surplus capacities. For e.g. Car, Steel & Aircrafts manufacturers are already staring at excess capacity. 11. Increase in Government Controls: In order to bail out sinking Corporates the governments, would buy out or control the operations of large companies. For e.g. AIG and Citibank 12. Impact on India: a. BPO Operations: India is likely to face a severe crunch on the IT and ITes services, rendered by Indian BPO Companies. b. Increase in Trade Deficit: Already in the last quarter, India¶s trade deficit has grown where exports are not meeting the set targets while imports continue to grow. c. Falling Currency: as the demand for dollars increases the Indian rupee is likely to weaken. The rupee has already depreciated to Rs. 50 a dollar. d. Pressure on Services Sector: As the demand for services is destroyed, these sunshine industries such as BPOs, Airlines, and Telecommunication etc. will face salary and employment cutbacks.
doc_965907969.docx
Effect
of
Current
Economic
Meltdown
on
International
Business
1. Slower global growth: Global growth stood at 5 percent in 2007, but the IMF expects world growth to slow to 3 percent in 2009 - 0.9 percentage points lower than forecasted in July 2008. 2. Economic contraction in some countries: In G7 countries except for the United States and Canada, GDP growth was slower in Q2 of 2008 compared to Q1. Three major European economies (Italy, France and Germany) experienced negative GDP growth in Q2, and forecasts are for a continued decline in Q3. The IMF forecasts around 0 percent growth for advanced economies in 2009. 3. Depth of slowdown: It is observed that economic slowdowns, preceded by financial stress tend to be more severe. Although employment has contracted in several countries in recent months, it has not been as severe as that during 1990-91. 4. Financing challenges for governments: State and local governments may be faced with financial crisis. Even administrative costs may be difficult to come by. The governments would be hard pressed for funds for guarantees and development work. For e.g. In the case of Iceland the banking sector has assets of around 300% of GDP, something no government could ever guarantee, at least not on a short-term basis. 5. Rising unemployment: According to IMF, unemployment in the advanced economies will rise from 5.7 percent in 2008 to 6.5 percent in 2009. 6. Large employment losses in sectors: Some sectors like construction, real estate services will experience disproportionate employment declines. In addition there will be significant job losses in the financial sector. 7. Reduced world trade volume: According to the IMF, the world trade will grow only at the rate of 1.9% as against the earlier estimate of 4.1% for 2009. A drop in exports, as well as capital inflow, may trigger a falloff in investments. 8. Rising income insecurity and disproportionate impact on low-income groups: As stock markets around the world have eroded trillions of dollars in wealth and rolled back some of the investment gains of the past 5 years, the investment and retirement savings of many individuals have lost significant value. There is a risk that low-income countries and lower-income groups within countries will bear the brunt of challenges, as ³the most poor are the most defenseless,´ says World Bank President Robert Zoellick. 9. Return to Tariff and Non-Tariff Barriers: Developed economies in order to ward off unemployment and financial crisis may erect barriers to free trade. This might start a local business environment. For e.g. President-elect Barrack Obama has already announced his intention to reduce outsourcing from US by 30%.
10. Surplus Production Capacities: In line with demand destruction, many branded products may face surplus capacities. For e.g. Car, Steel & Aircrafts manufacturers are already staring at excess capacity. 11. Increase in Government Controls: In order to bail out sinking Corporates the governments, would buy out or control the operations of large companies. For e.g. AIG and Citibank 12. Impact on India: a. BPO Operations: India is likely to face a severe crunch on the IT and ITes services, rendered by Indian BPO Companies. b. Increase in Trade Deficit: Already in the last quarter, India¶s trade deficit has grown where exports are not meeting the set targets while imports continue to grow. c. Falling Currency: as the demand for dollars increases the Indian rupee is likely to weaken. The rupee has already depreciated to Rs. 50 a dollar. d. Pressure on Services Sector: As the demand for services is destroyed, these sunshine industries such as BPOs, Airlines, and Telecommunication etc. will face salary and employment cutbacks.
doc_965907969.docx