Economic outlook improving in U.S., developed countries

10/23/2013 01:59:00 PM
Tom Karst

PMA Fresh Summit 2013NEW ORLEANS — An improving U.S. economy bodes well for better demand for fruits and vegetables at home, but slowing growth in some developing countries will temper export prospects.

A Fresh Summit 2013 workshop on the global economic outlook featured Rabobank economists who provided insight on world economic growth forecasts, global liquidity and the pace of merger and acquisitions in the agricultural sector.

Asia remains a formidable driver for global growth, said Vernon Crowder, senior analyst for food and agribusiness research for Rabobank. Developing countries in Asia have contributed to the worldwide increase in the production of fruits and vegetables. Global fruit output has increased 35% in the past decade, Crowder said.

Per capita consumption rose from 2001 to 2006 but declined after the onset of the recession in 2006, he said.

Crowder said consumption of processed and fresh fruit and vegetables (excluding potatoes) has been flat to declining in many developed economies from 2007 to 2012. The perceived higher cost of fruits and vegetables compared to processed food contributed to the downturn, as well as marketing, convenience and socioeconomic factors that favored processed food, he said.

“Even though it may be a perception problem, the consumer has a perception that other foods are cheaper and more convenient,” Crowder said.

Crowder said heavier marketing and advertising of fruits and vegetables has the potential to increase demand, however.

“We see that as an opportunity for the industry to focus on those convenience aspects of their products,” he said.

Most of the global trade in fruits and vegetables is concentrated in developed countries, and Crowder that the potential to develop trade in the developing world remains an attractive growth prospect.

Looking at the effect of global monetary policy, Elwin De Groot, senior European strategist and financial markets researcher for Rabobank, said the world’s economy seeks a balance in monetary policy.

“If you get insufficient liquidity, the system collapses, but if you get too much, then you get irrational exuberance,” he said.

Overall, De Groot said the global economic growth is forecast at 3% for 2013 and 3.5% for 2014.

China remains by far the biggest driver of the global economy and the U.S. is second but improving. While developing countries have recently led global growth, De Groot said developed countries — notably the U.S. — are becoming more vibrant.

“What we are seeing is that after a period of very slow growth in industrialized economies and very strong growth in emerging markets, we are seeing a shift back to industrialized economies and in particular, the United States,” he said.

In Europe, De Groot said the economic storm has subsidized but the economies in Europe are undergoing a very slow recovery process. “Reforms are paying off, but private sector rebalancing has only just started,” he said.

The German economy is the strongest in Europe for the near future, he said.

In the U.S., De Groot said population and productivity trends favor the U.S. For the next 10 to 20 years, population growth in the U.S. is stronger than in China, the United Kingdom, Japan and Europe.

The shale gas/oil revolution has put the U.S. in a lower cost position for energy than Europe; De Groot said there is a 150% price difference between the U.S. and European natural gas. “That’s a very positive development for manufacturing in the U.S.,” he said.

While high labor productivity, a housing market recovery, the shale gas boom and lower consumer debt favor economic growth in the U.S., De Groot said temporary headwinds to the U.S. economy are uncertain political dynamics of domestic fiscal policy, the debt ceiling debate, and the uncertain global economy. The U.S. must deal with controlling its debt, he said.

“Kicking the can down the road is not a long-term solution,’ he said. “As long as they keep doing that, there is pent up investment demand that will not be released.”

De Groot said there is much speculation about Federal Reserve monetary policy. Signs seem to point to an “easy” monetary policy and flat or fading interest rates until March 2014.

Long-term rates will resume their upward trend by 2014, he said, pulling global interest rates higher.

While China faces a challenge in creating sustainable growth, De Groot said he is optimist the country’s leaders can help stem the rise in debt and build up domestic demand.

“New Chinese leadership knows they need more sustainable growth, and they are making the shift from export-led economy to consumption led economy,” he said. De Groot said the Chinese economy may grow at a rate of about 6% to 6.5% in the years ahead.

Mexico’s economy, while struggling in the short term, should gain from its low unit labor costs compared with China. “Longer term, we are quite bullish on Mexico,” De Groot said.



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