‘Tis the season to hear forecasts.
And at last week’s luncheon sponsored by the University of Chicago’s Graduate School of Business, three distinguished economic and financial experts looked into their crystal balls and offered economic predictions for 2001 before a crowded Waldorf Astoria conference room audience.
Speaking with clipped, staccato phrases, the three painted a more gloomy than upbeat picture, although they offered a few reasons to remain optimistic. Here are a number of their predictions for 2001:
Marvin Zonis, Professor of Business Administration at Chicago GSB
For example, electronic components accounted for 60 percent of the exports in the Philippines and 44 percent in Taiwan. As U.S. demand for electronic devices declines in 2001, Zonis stated, China’s exports will not be as severely impacted as many of its Asian neighbors. “The U.S. will continue to buy the goods that China produces and exports, as a result of which China will not receive such a pronounced downward shock,” Zonis said.
Another positive sign is that China is in the midst of a political transition. “Watch in the year 2001 China’s Vice President, Hu, will be appointed Secretary General of the Communist Party, as President Jiang Zemin begins to give up power.” This transition, he believes, will be made in an environment of political stability.
Finally, China’s accession to the WTO in 2001 will spur corporate restructuring, Zonis predicted. Although he conceded that the restructuring process will entail its share of conflict, he asserts that things are “moving in the right direction in China.”
Zonis conceded that there has not been a fundamental restructuring of the Russian economy. “Vladimir Putin does not have the first idea of what a Russian economy is, but has been able to ride a wave of prosperity, which will continue into 2001,” he said. Zonis forecasted that oil prices will remain high until the summer of 2001, when there will be a significant drop.
Robert Z. Aliber, Professor of International Economics and Finance at Chicago GSB
Aliber’s forecasts for the U.S. economy in 2001–Real growth rate will be 1.8 percent, consumer spending will grow 2.4 percent, and the unemployment rate will average 5.1 percent. “This is my optimistic forecast,” Aliber warned. “What makes this year very different from any previous year in U.S. financial history is that the negative wealth effect will be much larger than ever experienced before.”
Joel M. Stern, Managing partner and CEO of Stern, Stewart & Co.
And uncertainty on the role of government generally causes real growth to slow, simply because economic agents are likely to take a wait and see attitude, thereby curbing plans for both investment and consumption, he added.
The reason is that the monetary base has been growing at only about 0.8 percent over the past year, after a greater than 6 percent growth rate in the prior three years. The bad news, Stern claimed, is that expected monetary expansion means that at long last, inflation will be greater than it has been in the last three years with a CPI increase of about 3.3 percent, and stable long-term interest rates.
“I expect the 30-year government bond to average 5.8 percent, within a range of 6.25 percent at the high end and 5.4 percent at the bottom.” With slow growth, he expects the unemployment rate to average 4.4 percent. Corporate profits will only increase by 4 percent and the deficit on the trade balance will be negative $320 billion thanks, in large part, to the price of a barrel of oil, which currently ranges between $30 and $35.