Press Room
MIC Predicts Global Economy to Continue to Struggle in 2H 2002
July 26, 2002
- The global economy is still recovering slowly, and many reports call for some regions to even post less growth in 2002 than in 2001. These less than ideal economic conditions have taken their toll on technology-based industries, as corporations are expected to maintain a conservative attitude towards IT (Information Technology) expenditures and investments for the remainder of 2002, and into 2003. While much of the rest of the world continues to flounder, the outlook for the Taiwanese economy is much rosier, with economic growth expected to pick up in the second half of 2002 and strengthen even more in 2003. Market Intelligence Center (MIC), a Taiwan-based IT research and consultancy firm, has released its report detailing anticipated developments for both the global and Taiwanese economies over the next 18 months.

After years of strong growth, the global economy increased by only around 2% in 2001. In 2002, the situation will improve only slightly, as the IMF (International Monetary Fund) predicts the global economic growth rate will surpass that of 2001 by a mere 0.3%. In 2003, the recovery is expected to be more evident, with global GDP (Gross Domestic Product) increasing by approximately 4%.

Breaking down GDP growth by various regions around the globe, China will continue to be the world’s fastest growing economy through 2003. Growth will slow down slightly in 2002, reaching only around 7% after a 7.3% increase in 2001, but will pick up again in 2003, when it is anticipated that China’s GDP will rise by 7.5%.

The economies of industrialized Asian nations, with the exception of Japan, are also expected to start picking over the next 18 months. While GDP growth rate will remain similar to 2001 levels in 2002, around 1%, a significant increase is predicted for 2003.

Japan will continue to suffer through its recession in 2002, as the country’s economy is expected to shrink by approximately 1%. However, relief is in sight, as a variety of reports call for the Japanese GDP to post positive growth in 2003.

GDP growth rate in the EU (European Union) exceeded that of the United States in 2001, but the growth rates of these two economic giants are expected to be about equal in 2002. In 2003, it is anticipated the United States will see a healthy increase in GDP of at least 3.5%, while that of the EU will remain under 3%.

Various economic indicators show that the United States and the EU have yet to pull out of the current economic slump, as of the close of the first half of 2002. The Industrial Production Index (IPI) of the United States remained just under the 140 level, still far below the peak of nearly 150 experienced in the fourth quarter of 2000. However, it should be noted that US IPI has been climbing steadily, if slowly, throughout 2002. EU IPI continued to hover in the 120 range in the second quarter of 2002, still showing no significant change since early 2000.

The EU Capacity Utilization Index (CUI) leveled off at just above 80% in the first half of 2002, after falling steadily from nearly 85% since the fourth quarter of 2000. The US CUI remained at approximately 75%, where it has been since September 2001, and does not figure to make any significant movements in the near future.

While the IPI and CUI of the United States and the EU have stopped falling, indicating that enterprises are confident the market will start to recover, neither index has returned to approaching 1999 and 2000 levels.

Turning to the demand side, the Purchasing Management Index (PMI) in both the United States and the EU posted a noticeable increase in the first half of 2002, indicating manufacturing expansion in both regions.

The Consumer Confidence Index (CCI) in both the United States and the EU remains decidedly low. The US CCI has been rising since October 2001, after plummeting following the events of 9/11, but it is still not especially high due to stagnant disposable income levels and the tendency for consumers to save a higher percentage of their income during periods of lackluster economic growth. The EU CCI remains low as well.

The current state of the purchasing management and consumer confidence indices in the United States and the EU indicate that market demand is still weak. Consumer confidence typically determines the time frame and direction of economic recovery, but there is nothing to boost consumer confidence at the moment.

With the global economy rather stagnant, enterprises have generally been conservative when it comes to IT expenditures. IT spending has stayed at a fairly constant level since May 2001. As many corporations have adopted a wait-and–see attitude in regards to budget and purchasing planning, that trend figures to persist in the future for the short-term.

Worldwide spending on IT hardware, software, and service is expected to show little change in the third and fourth quarters of 2002, but then display moderate growth in 2003 as the global economy gradually starts to improve. IT services hold the greatest potential for growth in IT spending.

Turning to Taiwan, the majority of Taiwanese companies expect the global economy to grow in the second half of 2002 and in 2003. According to the latest survey data from MIC, 57% of companies expect there to be moderate economic growth in the third quarter of 2002, and 3.6% see strong growth. Looking ahead to the fourth quarter, 21.6% of Taiwanese firms anticipate strong economic growth, and 60% envisage moderate growth; those percentages hold constant for the outlook for 2003.

The majority of Taiwanese IT companies expect to see an increase in orders in the second half of 2002. The outlook for the third quarter is somewhat conservative, with 39% of makers foreseeing little or no change in the number of orders, and 54% expecting moderate growth. Firms are much more optimistic about the fourth quarter, with 15% anticipating a rapid increase in orders and 65% foretelling a moderate increase.

Overall, MIC predicts growth for the global economy in the near future. The global economy is expected to grow 2% in the second half of 2002, and 3.2% to 4% in 2003. In Taiwan, the IT industry, which accounts for 25% of the Taiwanese economy, will experience moderate growth for the remainder of 2002, and then stronger growth of at least 5% in 2003, with the IC manufacturing industry being the catalyst.