By James Phillipps Increasing technology spend by companies will take over from consumption as the ...
By James Phillipps
Increasing technology spend by companies will take over from consumption as the leading driver of the US economy, according to Credit Suisse First Boston.
Technology spending is also expected to have a crucial impact on the growth in both Europe and Japan over the coming year. The anticipated high level of investment into technology upgrades underpins Credit Suisse's above consensus global GDP forecasts of 4.5% this year and 4.2% next year.
Oil prices are one main source of risk to these forecasts, although the group does envisage a return to Opec's $22 to $28 price target by next year.
Giles Keating, an economist at Credit Suisse First Boston, said even if oil were to remain in the $35 range, the impact on global GDP should be minimal.
Output of technology products in the past year rose by 50% in the US and 25% in both Europe and Japan. It is not just companies in the technology sector that are driving the investment boom. Old economy firms are also having to invest in new technologies, such as internet enablement and intranets in order to remain competitive, Keating said.
He added: "Unfulfilled orders for communications equipment in the US are increasing significantly, demonstrating that the investment boom has changed course to expand internet infrastructure rather than computer equipment, as in 1994."
This increase in technology investment will sustain US growth, Keating said, offsetting the gradual slow-down in consumer spending and non-tech sectors such as construction.
The political uncertainty resulting from the US presidential elections is not anticipated to impact too negatively upon US fiscal policy.
The likelihood of one party gaining control of the House, Senate and Presidency is low, giving further credence to the view that major changes in fiscal policy are unlikely in the next few years, Keating said.
Although Europe is sensitive to high oil prices, the research company believes it will also benefit from increasing technology as the region looks to close the gap with the US.
Credit Suisse First Boston also sees this technology trend having a positive impact on Japan, and notes that the demand there is likely to aid its economic recovery as a whole.
Keating said: "The second strong GDP figure has now confirmed that recovery is underway, led by the IT-related demand.
"Although a small dip is likely in the third quarter, we envisage growth gathering pace progressively to an annual rate over 4% in the second half of next year.
"Investment, particularly in the tech sector, will be the key, with the second-quarter decline merely reflecting erratic moves in capital spending by the retail sector."
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