Possibility of new global credit crunch : Report
Fears regarding a looming sovereign debt crisis in the Eurozone, another global economic slowdown and even increased protectionism may also ultimately trigger a new credit crunch as banks err on the side of caution and limit lending, a factor further prompted by heightened uncertainty about interbank markets, according to an end-2011 survey of 1,000 senior global business executives by Ernst & Young.
This recently released third annual globalisation report, which also draws on Ernst & Young's Globalisa- tion Index of the world's 60 largest economies, further noted that the 1,000 senior global business executives surveyed were "more pessimistic than most economic forecasters.
While they remained optimistic about the medium-term potential for emerging markets, slightly more than half of the senior executives questioned believed that the global economy is likely to fall back into recession by the end of 2012. Almost two-thirds consider it likely that there will be a new global financial crisis, triggered by Eurozone debt de- faults. And almost 90% of our respondents expect to see an increase in protectionist measures if the global economy slides into a double-dip recession."
As such, the report advised businesses to adjust their business model in keeping with the new global outlook. It also stated that companies should "rethink approaches to outsourcing as well as investigate the benefits of near-sourcing." Outsourcing is the growing corporate practice of shifting operations offshore to countries which offer better costs while near sourcing means moving nearby or to a region, or country, sharing borders with the company in question's product, or service, delivery channel. Near sourcing is a newer concept than outsourcing and is becoming increasingly popular in the wake of increasing fears regarding protectionism.
Ernst & Young also recommended that, because of the possibility of uncertainties in government policies arising from heightened protectionism, "[companies] should engage with policy-makers to make the right decisions, combine local knowledge with global coordination and build stronger relationships with tax administrations."
Further, the globalisation report also stated; "The performance of the emerging markets, led by the BRIC countries, continues to offset sluggish growth in the developed world. Ernst & Young forecasts that the combined GDP of the emerging markets is set to grow by 5.3% in 2012, continuing to outpace the developed world and increase their share in world GDP. The GDP of emerging markets (measured on a purchasing power parity basis) could overtake that of the developed economies as early as 2014, with about 70% of total world growth in the next few years coming from the emerging markets, of which over a half will be from China and India.
The outlook in Europe, where Ernst & Young forecasts essentially flat growth in 2012 even if the sovereign debt crisis is resolved, and in the United States, where Ernst & Young is forecasting modest if below par growth of 2.5%, is less positive." (JH)