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.
All eyes will be on Marks & Spencer again this year as it attempts to sort out its problems. Analysts feel the bad news is still not over and that Peter Salsbury, chief executive, may not last the year. M&S could even face a hostile bid. Other bids could be seen in the supermarket sector with both J Sainsbury and Safeway vulnerable.
Associate City Editor
THE FIRST millennium had barely begun when Jesus was throwing the money changers out of the temple. The next millennium is likely to see banks increasingly invading our homes.
Over the last decade there has been a dramatic expansion of telephone banking. The next few years are likely to see a proliferation of new ways to conduct your banking, with home computers, mobile phones and interactive television all competing as the means of access.
A massive shift in power from the banks to their customers is under way from which no bank, even the most efficient, is going to immune.
Belatedly, the implications of the e-commerce revolution have started to hit home as investors realise the lower costs of on-line banking will undermine the value of bricks and mortar assets such as bank branches. Even the bid battle triggered by Bank of Scotland for NatWest, the most unloved of the big four English clearing banks, has failed to boost the sector.
UK MEDIA companies will grapple with two broad themes: the coming together of content and distribution forms through digital convergence, and plain old fashioned consolidation through merger and acquisition activity.
United News & Media's proposed link-up with Carlton Communications illustrates how both themes will work together. A so- called Carlton United is all about gaining scale in a mature domestic industry, namely British commercial television, to fund expansion into digital television and build a perch in the rapidly expanding Internet sector.
Some British companies, notably Pearson, owner of the Financial Times and the world's biggest education publisher, are already building global scale in a few areas, while moving rapidly to build on-line businesses. Other UK media companies are bound to follow the example of Marjorie Scardino, Pearson's chief executive.
In stock market terms the sector was one of the darlings of 1999 but there could be polarisation this year between winners and losers. Companies such as EMI, BSkyB, Dorling Kindersley and Reuters will be under pressure to justify spiralling expectations. For smaller media players, the key will be to move faster than the big companies in coming up with content and commercial strategies to exploit it. In more traditional areas, print publishing and television, 2000 is likely to bring further consolidation.
VIAGRA ASIDE, the pharmaceutical industry has not met the expectations of scientific progress for 2000. This year will not bring a wonderdrug to help us grow two heads, or a pill that preserves our youth.
From a scientific perspective, the action centres on diet- related disease. It could be judgment year for the pioneering "glitozone" treatments for type 2 diabetes, which is becoming increasingly prevalent because of Westerners' unhealthy eating habits.
IN THE wake of this year's longer-than-ever holiday season, companies in the leisure sector will have some serious issues to confront.
In the travel industry, the impact of last summer's block on the proposed Airtours-First Choice merger has left the top four operators looking overseas for future expansion. Thomson Travel will be looking to bury the ghosts of the past year, when it seemed to issue more profit warnings than boarding passes. But despite the disappointment of poor sales over the millennium period, pre- bookings for the coming year look strong.
Britain's punch-drunk brewers are targeting overseas growth after a year of being hammered at home.
In the fitness sector, the market is in danger of becoming flooded with newcomers such as Fitness Exchange and Greenall's Greens desperate to emulate the success of established operators such as Whitbread's David Lloyd Leisure.
The betting industry is awaiting the outcome of a Government- commissioned review into regulation and levying in the sector. With Ladbrokes, Coral and William Hill all following Victor Chandler offshore in 1999, Internet gambling looks set to be the toast of 2000.
AFTER THE annus horribilis of 1999, culminating in the Paddington rail crash, Railtrack shareholders must be praying that 2000 proves the year when the troubled operator of Britain's rail network finally gets back on course.
Its destiny should be clear by the middle of the year once government strategy for the transport industry has been set. In March, Railtrack will produce its network management statement, setting out proposals for a pounds 40bn investment programme. In May, the chairman of the Strategic Rail Authority, Sir Alastair Morton, publishes his strategic plan.
And in June the Transport Minister Lord MacDonald unveils his 10- year transport plan.
All that is left then, is for the Rail Regulator, Tom Winsor, to decide how much Railtrack will be allowed to earn in order to finance the great rail renaissance.
This year will also see the re-letting of the 25 passenger train franchises. Some train operators look to be in danger of losing their franchises.
Going underground, it will be a minor miracle if John Prescott meets his end-of-March deadline for the part privatisation of London Underground.
Up in the air, this is the year when the Government aims to get parliamentary approval for the sale of a 51 per cent stake in Britain's air traffic control service, Nats. Investor attention is likely to focus more on the fortunes of Bob Ayling's beleagured British Airways.
Finally, motor transport. In January, the Competition Commission is due to publish its report into new car prices.
MICHAEL HARRISON, Business Editor
THE UTILITIES sector was one of the stock market's worst performers last year thanks largely to an unprecedented regulatory assault on the balance sheets of the water and electricity companies. The impact of that is likely to be reflected this year in a renewed wave of consolidation and further overseas expansion as the utilities seek to find cost savings and unregulated revenue streams.
The big question remains whether UK water companies will be allowed to merge with one another to help them meet the efficiency targets set by the regulator, Ian Byatt of Ofwat.
The other big challenge the water industry faces this year is the advent of competition. Both the Government and the regulator have made clear that they expect to see much more of the market thrown open through the system of "common carriage" - which enables one supplier to use another's network of pipes.
Consolidation will also be the name of the game in the electricity sector, where London and Eastern have already announced plans to merge their distribution businesses.
In gas, 2000 looks like being the year when BG does the splits for a second time and demerges its pipeline business Transco from its international arm.
THE UNPRECEDENTED change sweeping the telecommunications industry is set to intensify in 2000.
Many of the products recently codified in acronyms - ADSL for asymmetric digital subscriber line technology and WAP for wireless application protocol mobile phones - will become everyday consumer products next year.
Leading the charge will be mobile phone usage. With mobile handset use rising from around one-third of Britons currently to more than one-half in 2000, network operators will find it difficult to meet demand.
By spring, WAP phones allowing Internet access will be available. By autumn, perhaps, consumers may wonder how they ever managed without wireless access to train timetables, movie booking facilities and headline news.
In the traditional fixed line market BT seems deadly serious about making high speed Internet access come home to consumers. Its ADSL launch, due in April, will allow households in London and Manchester to surf the web at speeds from 10 to 40 times those currently available.
In response the cable operators are scrambling to launch their own high- speed cable modems by spring.
Mega deals should continue to feature. By early February, we should know whether Vodafone AirTouch has succeeded with its record breaking pounds 83bn offer for Mannesmann. BT's alliance with AT&T is also worth watching on this front.
Questia, a part of Gale, Cengage Learning. www.questia.com
Publication information: Article title: 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. Contributors: Not available. Newspaper title: The Independent (London, England). Publication date: January 3, 2000. Page number: 11. © 2009 The Independent - London. Provided by ProQuest LLC. All Rights Reserved.
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