A global perspective for corporate investment in new europe

Meanwhile, during the later stages of preparation for entry and the subsequent 18 months, it has become clear that the balance of the economic environment has been disturbed – both globally, by what I first referred to in anotherpublication as a ‘shift in the politico-economic tectonic plates’ (Jonathan Reuvid (2001) Introduction, Risk, ed Coface, Kogan Page, London), and within the enlarged EU itself. The GDP growth of China and India far outpace that of the United States and the larger countries of the EU15. Although the major Asian economies start from a lower base in terms of GDP per head of population, no one now doubts the ultimate scale of their impact on Western economic competitiveness.Stimulated further by World Trade Organization (WTO) entry at the end of 2001, China’s trade surplus continues to rise and the 12-month moving balance is approaching US $100 billion. In well-publicized areas, such as textiles and clothing, Chinese exports have already driven European manufacturers to the wall. Consumer durable markets, such as white goods, electrical appliances and audio-visual equipment, are now almost lost to imports from Asian invaders. Last-ditch protectionism, in contravention of the WTO spirit and rules, would not keep the dragon from the gates for long. The Organization for Economic Cooperation and Development (OECD) has reported recently that China’s economy is already bigger than that of two G7 countries (Canada and Italy) and will soon overtake that of Britain and France. After 2010, only the United States, Germany and Japan will enjoy greater levels of GDP than China and only the United States will remain ahead for long.The US economy is in a different situation to that of Europe as it cedes the levers of global macroeconomic control. On the one hand, it looks forward to GDP growth in excess of 3 per cent through to 2006, much lower than China’s 9 per cent plus and India’s 6.3 per cent, but well above current projections for the Eurozone of less than 2 per cent. On the other hand, growth in the US economy is maintained chiefly by consumer demand, the low savings ratio of US households and strong inward foreign direct investment, while its current account deficit has risen to almost US $750 billion, representing 6.3 per cent of GDP and the highest among developed economies. This imbalance is sustainable only as long as China and Japan continue to invest a major part of their foreign exchange reserves in US treasury bonds and securities but is ultimately unstable. Any major downturn in the US economy might help to correct its trade imbalance, but the knock-on effect on Europe’s economies would be calamitous. As it is, the impact of permanently higher oil prices is likely to be more serious for European economies than for the US economy.Elsewhere, Japan’s economy is recovering strongly from its deep recession of the past decade but GDP growth remains sluggish at Eurozone levels. The performance of other Asia Pacific countries, Latin America and Africa, including the Republic of South Africa, is largely irrelevant to European companies uninvolved in minerals, metals or basic commodities.