2014 economic outlook: Moderate growth, but questions on China, commodities, interest rates

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2014 likely will be a year of moderate recovery in the world economy, but big questions loom: How much will China’s growth slow and its debt burden pinch? And how much will China’s slowdown stunt prices for metals and other basics, cutting revenue for commodity-driven Latin America?

Those were among points raised during the annual economic outlook at WorldCity’s Global Connections held Jan. 24. The session featured witty-one liners from business professor Jerry Haar like this one on concerns over the new U.S. Federal Reserve chief: “Don’t worry. Janet Yellen is Ben Bernanke in drag.” Florida International University business professor Jerry Haar. Photos by Carlos Miller

The world economy is forecast to grow between 2.9 percent and 3.6 percent this year, driven by a pickup in advanced nations. Growth in emerging markets instead should slow, Haar told participants.

Among advanced economies, U.S. growth is projected to speed a bit, Canada’s tail off some and Europe’s finally turn positive after years of recession to rise maybe 1 percent. Cautioned Haar: “You need to take a look at numbers like I do, with a grain of salt – and a slice of lime and a shot of tequila.”

Emerging markets are set to grow in the 4.5 percent to 5.5 percent range, as commodities prices fall. China’s growth may slip to 7.5 percent. Latin America should grow 2.6 percent to 3.5 percent, led by market-oriented nations in the Pacific Alliance: Panama, Peru, Mexico and Chile. In contrast, the region’s more tightly-controlled markets in Argentina, Venezuela and Brazil should post smaller gains, said Haar.

Argentina faces especially tough challenges. With inflation in double-digits and foreign reserves dwindling, the country’s currency lost more than 15 percent of its value late January, marking its worst currency drop in more than a decade. Social protests are mounting and prospects weak, said Haar.

“If Justin Bieber were a country, he would be Argentina,” said Haar, referring to the news just days before that the teen star had been arrested for driving drunk and speed racing in Miami Beach.

Is Latin America’s party ending?

Veteran analyst John Price, who leads Americas Marketing Intelligence, offered a sobering forecast for South Florida too. He said many businesses in greater Miami have been riding the wave of Latin America’s prosperity for the past decade, but that party is winding down.

John Price, who leads Americas Marketing IntelligenceLatin America surged for two main reasons: Low U.S. interest rates, which cut the region’s payments on its hefty government debts. And China’s soaring demand, which lifted prices for its commodity exports and boosted tax revenues. Governments in Latin America as a result spent unprecedented sums in recent years on schools, roads and other improvements that helped business and the economy. But many political leaders also pocketed huge amounts from the windfalls, said Price.

“That’s why Brazilians, Argentines and Chileans are pissed off at their governments…The amount of graft and corruption topples anything in the past” in dollar terms, said Price.

Today, as commodity prices slide and U.S. interest rates rise, government cash flow looks weaker in the region. And if Washington allows U.S. oil and gas exports, prices for those key commodities could slip more on world markets, further eroding revenues for Trinidad, Peru, Venezuela and others.

“If you think consumers and voters in Latin America are frustrated now, wait for two years from now,” warned Price of rising social unrest in the region.

Mexico: a key growth market in Latin America

For delivery giant UPS, one key growth area in the Americas this year is Mexico, especially its auto industry and other manufacturing bound for U.S. markets.

“The wage rate of the Mexican worker is slightly lower than the Chinese worker. Ten years ago, that was not the case,” said Romaine Seguin, president of the Americas region for UPS.

Among products shipped to the region, pharmaceuticals and medical devices also are growth areas, now that Latin America’s rising middle class can afford to spend more on its health, added Seguin.Lewis Greenberg, director of marketing for accounting firm Daszkal Bolton

What about prospects for more student exchanges, an initiative touted by Secretary of State John Kerry?, asked Lewis Greenberg, director of marketing for accounting firm Daszkal Bolton.

Panelists applauded the concept, but Price lamented that many MBA programs send students to “safe” countries in Europe or Asia and not to emerging markets in Latin America.

Why would commodity prices slide, while the world economy continues to grow?, asked Randy Friedlander, senior vice president and wealth advisor for Morgan Stanley Wealth Management.

Part of the reason is that China needs less copper, iron and other basics for bridges, airports and other infrastructure, since it is slowing its building programs. Also, the political risk in the Middle East has waned, reducing pressure on oil prices. Plus, Europe, the United States and others have found ways to make cars, energy and other items using smaller amounts of metal, oil and the like, explained Price.

“Global demand for commodities is no longer as tied to growth as it once was – because of efficiency,” Price said.

India: Still stifled by government bureaucrcy

Where does India fit into the global scenario?, asked trade specialist Belen Cristino, founder and chief executive at consulting company One to One 11.

While India has a middle class the size of the U.S. population, it continues to struggle with an enormous bureaucracy that stymies investment, said Haar: “India’s problems are self-imposed.”

UPS’ Seguin agreed business in India can be very difficult: “It can take two years to five years to get a license” in India, she said.

How about South Florida’s prospects as a tech hub for 2014 and beyond?, asked Max Shelford, business development manager for Vista Technologies.

“This is going to be one of the most monumental changes Miami has seen since Julia Tuttle convinced Henry Flagler to build a railroad to Miami,” said Haar. He sees Miami emerging as a key meeting place for companies, financiers and techies, with the annual eMerge Americas conference as one catalyst.

Up and comers: Look out for Uruguay

And which countries are the up and comers to watch in Latin America?, asked consultant Tak Takasu, active with the local chapter of the Strategic and Competitive Intelligence Professionals Society.

Tak Takasu, active with the local chapter of the Strategic and Competitive Intelligence Professionals Society.“I love Uruguay,” recently named country of the year by The Economist magazine, said Price. He admires the country’s president, Jose Mujica, a former guerrilla who lives on a small farm and with his wife, grows chrysanthemums for sale in local markets. Mujica donates about 90 percent of his salary, much of it to a program to expand housing for the poor.

“It’s such a breath of fresh air to the arrogance and splendor of the political class in Latin America,” Price said. “Humility is their calling card.”

Global Connections is one of six event series organized by media company WorldCity to bring together executives on international business topics. The Global series is sponsored by real estate company Waterford at Blue Lagoon, air-conditioning maker Daikin and FIU Business.

The next Global Connections is set for Feb. 28 on the topic, “House on Fire! Business Advice from Crisis Management Experts.” 

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