– but is this a smart strategy? With phrases such as "darkening outlook", "market freeze", and "economic meltdown" dominating the financial headlines, companies are electing to implement a cautious approach.
"CEOs tightening their economic belt and implementing cautionary growth strategies, and consumers spending more conservatively will fundamentally cause any real slowdown or recession we may experience," states Frost & Sullivan Chairman David Frigstad. "The problem is a spiral effect driven by fear. A fear-based climate is causing consumers to lose confidence and cut back on their spending, banks will tighten their credit policies and turn a false perception of doom and gloom into reality, thus driving the economy into recession."
While this response is driven by the perceived fear, it is in fact, out of proportion with the actual condition of the U.S. economy. "There are no economic measurements that support the fact that we are going into a recession. The fundamentals are strong for continued growth and the overall global economy is very healthy," continues Frigstad.
The global economy in general is being driven by several huge factors which significantly outweigh any blip in the U.S. mortgage market. Global investment in commercial real estate increased from $665 billion in 2006 to $930 billion in 2007, and foreign buyers will likely look to the U.S. for properties with long-term value. Furthermore, the current exchange rate of $1.51 per Euro expects to support the growth of exports by offering strong opportunities for the U.S. economy.
A recession is not inevitable, but it may be a self-fulfilling prophecy. Frost & Sullivan research reveals the current concern over the "crisis" in the U.S. subprime market is overstated and reflects the risky lending practices of banks. The subprime mortgage market accounts for $1.3 trillion of the total U.S. economy, of that only 1.5% is actually at risk. Considering the default rate of 1.5% is the same today as it was in 2004, it seems foolhardy to tie this amount to a nationwide economic downturn.
Growth opportunities reside in uncertainty and this should not change in the time ahead. "Overall, our research on technology, markets, and economics clearly shows that the global economy remains strong and fueled by technology-driven productivity improvements, enhanced logistics, global democratization trends, better trade infrastructure, and a highly dynamic, commercially-focused Asian business community," concludes Frigstad.
Frost & Sullivan will continue to monitor the global economy across a number of industry sectors and will publish its findings as they become available.
Members of the media interested in interviewing Frost & Sullivan's Chairman, David Frigstad, please contact Melina Trevino at melina.trevino[.]frost.com, or 210-247-2440
If you are interested in receiving a recording of Frost & Sullivan's recent Chairman's Series on Growth entitled The Growth Process: A Systematic Approach to Optimizing Growth to learn how you can enhance your organization's decision-making and business strategies, send an email to Melina Trevino - Corporate Communications with the following information: your full name, company name, title, telephone number, email address, city, state, and country. Additionally, to participate in all upcoming 2008 Chairman's Series on Growth webcasts, please visit frost.com/growth.
About Frost & Sullivan
Frost & Sullivan, the Global Growth Consulting Company, partners with clients to accelerate their growth. The company's Growth Partnership Services, Growth Consulting and Career Best Practices empower clients to create a growth-focused culture that generates, evaluates, and implements effective growth strategies. Frost & Sullivan employs more than 45 years' experience partnering with Global 1000 companies and operates out of more than 31 offices on six continents.