Managing cost and growth in uncertain times

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July 22nd 2008  Printer version



FROM TOWERS PERRIN

While periods of economic instability are not unusual in today’s global marketplace, this year’s turmoil seems particularly challenging for companies from Paris to San Francisco. Sharply higher prices of food, oil and other commodities, a falling dollar, tightening credit conditions and plunging stock market prices have been accompanied by warnings that the world’s major economies confront a new era of unusually diffi cult challenges.

To be sure, China and India, the twin powerhouses of global growth, continue to expand, providing important support that offsets some of the weakness gripping the U.S. And some companies, simply by virtue of their type of business, are faring better than others. Energy companies, for example, remain high performers while most automakers and airlines are struggling.

Still, many analysts predict that it’s only a matter of time before the weakness of the U.S. economy spreads to the major developed markets in Europe and Japan. Even companies in relatively strong economies — China, Australia and Russia, for example — are expected to experience some degree of slowdown and have to worry about exports, access to credit and exchange rate volatility. There’s no sanctuary in an interdependent global economy.

“The world economy has entered new and precarious territory,” according to the International Monetary Fund (IMF) in its annual report on the world economic outlook. The IMF forecasts that world output will grow on average 3.7% in 2008, a considerable deceleration from the 4.9% increase recorded in 2007. Moreover, the latest IMF forecast, issued in April, marks down estimated growth rates in nearly all the world’s economies from the projections issued only a few months earlier in January


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Towers Perrin
Source: Towers Perrin