Jan. 26, 2006 - Once again the mavens of global finance, CEOs and assorted ministers and heads of state have descended, like migratory birds, on snowy Davos, Switzerland, for the annual World Economic Forum, there to ponder weighty issues of geopolitics and pronounce upon the future.

Story continues below ↓

How well will they do? Based on the accuracy of last year’s forecasts, not very. Davos attendees got growth right: hot in Asia, healthy in the United States, dismal in Europe. But everybody agreed: bumps lay ahead. The U.S. dollar would fall. (It rose.) Interest rates would rise. (They didn’t.) Global bubbles from real estate to stocks were likely to burst. (They haven’t, at least not yet.) As for oil and energy prices? “We didn’t even talk about it!” exclaims Stephen Roach, chief economist of Morgan Stanley in New York and one of Davos’s pre-eminent economic seers. A black mark on his prognosticatory scorecard? Nah. “That’s just the way it goes in the forecasting business,” he says with a shrug.

So what’s the outlook for 2006? More of the same, if the Davosians are still to be believed. “It will be another Goldilocks year,” predicts Laura D. Tyson, dean of the London Business School. The U.S. economy will continue to hum along at 3.5 percent. Europe will languish at 2 percent, or less. But China will sizzle at 10 percent, according to Zhu Min at the Bank of China. If its GDP is adjusted for consumers’ spending power (wonks call it “purchasing power parity"), Zhu adds, China has just displaced France as the world’s fourth-largest economy. And there are at least two new bright spots not glimpsed a year ago. After 15 years of near depression, “Japan is back,” says Jacob Frenkel, vice chairman of American International Group. So, it appears, is Germany. With a new chancellor in office and modest but important economic reforms taking hold, reflected in new polls showing consumer and corporate confidence at their highest levels in a decade, the once (and future) locomotive of Europe at long last looks like it’s ready to get rolling.

Davos boosters like to say that if you leave the five-day conclave without an insight that changes the way you see the world, you might as well not come back. On the eve of the conference, the global consultancy PricewaterhouseCoopers released its ninth annual Global CEO Survey. Among its findings is a worldview-changer if there ever was one.

For more than a decade now, if you asked a chief executive why his company was shifting operations to China and other cheap-labor manufacturing centers, the answer would be to cut costs. But lately, there’s been a significant shift. According to the CEO survey, nearly two thirds of these executives now say their principle reason for investing in these countries is less to reduce costs than to guarantee access to China's new and fast-growing consumer markets. “Outsourcing is no longer chiefly about lowering costs,” says PricewaterhouseCoopers CEO Samuel DiPiazza. “Increasingly, multinational companies are investing in countries like Brazil, Russia, India and China because they represent substantial growth opportunities in their own right.”

CONTINUED

1 | 2 | Next >

Rate this story Low