The Federal Reserve confirmed that the US economy is slowing, easing monetary policy earlier and mor...
The Federal Reserve confirmed that the US economy is slowing, easing monetary policy earlier and more substantially than expected. Economic activity is also slowing in Europe, but there are big differences between it and the US.
First, the European slowdown is proving more muted (we continue to expect the European economy to grow by just under 3% in 2001). Second, European consumers are in better shape than their US counterparts. Countries such as Germany, France and Italy will be implementing tax cuts in 2001, bolstering the financial wellbeing of their consumers.
At the beginning of last year, events were unfolding in a way not seen since the consumer goods revolution of the 1950s. The internet appeared to hold all the answers and everyone wanted a slice of it. Today, the outlook is far less enticing.
Business-to-consumer (B2C) e-commerce companies have been hit hardest, but business-to-business (B2B) firms are also finding things tough. A year ago, companies were embarking upon e-commerce programmes designed to boost sales; today, the tendency is to invest only in 'mission critical' software to contain expenditure.
Telecommunications firms are struggling to maintain their business models, hampered by the cost of third-generation licences. Meanwhile, BT has talked about demerging its mobile phone arm, but there is little appetite in the stock market for such offerings at present.
So who will be the winners in 2001? We know that companies whose customers are cash poor are failing, so perhaps we should look towards businesses whose customers are cash rich. This year's most affluent customers are likely to be governments. Europe's public finances have rarely been in better shape (deficits have shrunk to around just 1% of GDP, even in Germany and Italy), which means that slower growth can be boosted by increased spending. Public services, including healthcare, education, transport and defence should enjoy fresh flows of cash. A relatively buoyant European consumer should benefit general retailers, and car manufacturers committed to the European market (Peugeot, for example). Our long-term liking of Europe's asset gatherers (such as Skandia of Sweden) remains in an environment where disposable incomes are rising and mutual funds are growing at rates as high as 50% a year.
Despite the travails of the technology sector, we should not overlook a steady rise in the popularity of high technology consumer electronics items either. Mobile phones, DVD films and Sony Playstation2 games are selling strongly (and profitably).
Established themes in Europe, such as rising corporate productivity, the empowerment of the consumer, and the increasing popularity of mutual funds are set to continue to play out this year, and are represented in our European funds accordingly.
Anand Sunderji is European equity fund manager at Invesco
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