New Economy Puts the Fizz into Forecasts for 2000 ; the Impact of the Internet Will Be a Recurring Theme in This Year's Sector Analysis, Leaving the Old Industrial Economy under a Cloud and Bringing Mergers and Shake-Outs to Businesses Struggling to Adapt
THERE IS an extraordinary degree of optimism about economic trends, a fizz of anticipation that can be explained by looking back at last New Year. As 1998 turned into 1999 it was not yet clear that the world economy was emerging from what most participants experienced as the worst financial crisis in post-war memory.
The Asian crisis had continued through the year, Russia defaulted in August, swiftly followed by the rescue of LTCM, and Brazil was clearly on the verge. Alan Greenspan, the Fed chairman, cut US interest three times in rapid succession and even so Wall Street fell 25 per cent. Closer to home, many forecasters expected a recession in the UK. Hopes for 1999 were not high.
The past 12 months have been extraordinarily buoyant in the circumstances. The US economy has delivered another year of high growth with low inflation and low unemployment, and share prices have reflected New Economy thinking and the dot.com boom. The UK economy paused, then picked up again.
No wonder then that most economists are upbeat about prospects in 2000. In the UK most forecasters agree with the Chancellor's prediction that the economy will grow 2.5 to 3 per cent, and most are more optimistic than Gordon Brown about the likely size of the Government's budget surplus.
Elsewhere, growth is expected to be higher than during the past year pretty much everywhere apart from the US. But even a US slowdown will be welcomed as long as Mr Greenspan - whose term is due to expire next summer - can achieve a soft landing.
Some economists remain extremely pessimistic about the potential for a stockmarket crash or dollar crisis. The Fed's conventional model suggests share prices are about 50 per cent overvalued.
IF 1999 was the year the Internet boom started, 2000 should see its impact gather pace.
Internet access is rising every month and forecasts suggest that one in five British households will be on-line by year end. What's more, with digital subscriber line and cable modems being rolled out from the spring, home users will begin to have access to bandwidth to now only available to corporate users.
This is expected to boost e-commerce activity. On-line shopping faces a crunch year with backers looking for their expensive investments to start paying off with significant sales increases. Usage of banking and personal finance services on-line should also grow as should media-related applications, notably the downloading of MP3 files for playback on PCs and MP3 recorders.
A powerful symbol of the Internet's emergence, however, is its profile in the stock market. The soaring share prices of internet stocks such as Freeserve and QXL may be just the beginning for the UK on-line sector.
IF RETAILERS thought last year was tough, this year is not going to be much easier. That is the view of most retail analysts, who predict that the trends of price deflation and increasingly choosy consumers are set to continue.
Rising interest rates could be a factor, particularly in sales of electrical goods and furniture, which have risen strongly helped by the digital boom and the housing market respectively. Margins are expected to remain under pressure, though the key will be the interest rate effect on demand, which has remained healthy this year. If that starts to falter, profits will be severely affected.
Key points to look out for will include the millennium effect on sales, the threat of e-commerce, the performance of Marks & Spencer and further consolidation as retailers seek protection with scale.
Verdict, the retail consultants, predicts that the high street will enjoy a millennium surge in spending as consumers treat themselves to special items. But others are more sceptical, saying spending will merely be dragged forward. …