Prepare to Act and Invest in Long-Term Growth

“As the euro makes additional gains into 2013, BVAA members should continue to pursue quality in products and services to differentiate against compet

by Will Skebey of ITR Economics

OECD Europe Leading Indicator trend

BVAA Introduction
BVAA recently engaged Alan Beaulieu, President of ITR Economics and a regular speaker at VMA Annual Meetings, to speak at the Association’s AGM meetings on December 7th 2012. Here his colleague Will Skebey gives Valve User readers the first of a series of interesting insights into the economy, both short and long-term…

The European continent has suffered through various waves of positive and negative news during recent months, yielding the questions: Where is the economy going and how can I prepare for what lies ahead? At ITR Economics International, we highlight the emerging economic, financial, and (to a lesser extent) political trends to help businesses successfully navigate through the uncertainties of an unstable economic environment.

Debt talks dominate the agenda as European leaders seek to alleviate the pressure of bloated government deficits in over halfa- dozen countries. While progress toward a pan-European financial agreement is slow, several positive signals have developed over the course of this year.

Both German and French leaders remain committed to ensuring that the economy possesses the necessary liquidity to keep consumers spending and businesses at work producing goods and services. Germany’s Constitutional Court gave judicial approval for monetary contributions to the European Stability Mechanism. The European Central Bank (ECB) is doing its part to increase lending by lowering interest rates and accelerating the bureaucratic processes. To prevent future financial problems, politicians throughout the continent are seeking uniform regulations and oversight for the banking sector. Additionally, governments are examining tax, spending, and public services reform as a way to shrink deficits. Successfully solving these difficult issues will put Europe in a better position for long-term growth and prosperity.

Despite discouraging headlines in the media, economic data is showing positive indications for Europe in 2013. The OECD’s Europe Leading Indicator (an index comprised of economic variables) is trending upward using a yearover- year comparison, suggesting that a recovery trend will emerge in the overall economy in 2013.

Europe Retail Sales are rising to unprecedented levels (annual basis), although much of the growth can be attributed to expanding UK, German, and French retail markets offsetting less activity in other smaller countries. Companies with substantial exposure to the Spanish, Italian, Portuguese, and Greek consumer sectors need to divert resources to areas with more stable government finances and sustainable demand.

A weakening euro gave euroarea manufacturers a pricing advantage in non-euro markets in the first seven months of 2012. The recent strengthening of the euro following the announcement of the ECB’s bond buying program and the approval of German aid to the ESM is lessening the currency advantage. As the euro makes additional gains into 2013, BVAA members should continue to pursue quality in products and services to differentiate against competitors.

Macro-economic trends will provide a host of factors for companies to consider when projecting future demand for products. This is an opportune time to examine internal production processes with the goal of increasing efficiency throughout the organization. It may seem counterintuitive to spend money in this period of uncertainty, but efficiency investments now will increase your future profitability for years to come. Training of personnel will be an important aspect of the drive toward efficiency.

Industry Trends
The world oil and gas industry is expanding to record levels, supported by rapidly increasing energy demand in emerging markets. Global mining machinery production activity (minus North America) is rising at a 3.4% annual rate, and we expect more gains in the near term. Europe’s weakening economy is yielding a less favourable environment, but improving conditions in other regions, such as Brazil and Taiwan, are helping worldwide activity. In the long term, the mining machine industry will benefit from the world’s insatiable appetite for fossil fuels to power automobiles, power generation facilities, and for use in consumer goods. The North American oil and gas market has grown a more robust 16.2% during the past year. US, Canadian, and Mexican companies are producing more and intensifying exploration efforts on the continent to reduce reliance on Middle Eastern energy. Competition in this region will be fierce, but exploiting and developing competitive advantages will position your company for success in this market.

Understanding how your business functions in relation to the national, regional, and global economy will position your company to benefit from opportunities that competitors may not see. Whether it is through industry research, product development, or exploring new markets, now is a good time to invest the time to establish effective business practices that will lead to sustainable growth for your company.

ITR Economics International
Tel: 001 603 796 2500
www.itreconomics.com
www.itreconomics.eu

Published in Valve User Magazine Issue 23


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