December 31, 2010

A brief 2011 forecast by economic sector

Today we are closing 2010, the year may have had its ups and downs, it has given us lots of topics to discuss, but I firmly believe that looking forward is the best way to go forward so instead of doing the typical year recap I think it is better to go for a 2011 forecast by economic sector. Keep in mind that the following forecasts come from the top of my mind, based on trends, news, events and macroeconomic indicators. Do not expect complex numerical models to calculate earning figures, growth rates and such in this post. We already have lots of so-called experts playing fortune-teller with the economy, most of them with very poor results anyway... 

There is a repeating variable in most of the sectors treated here which I do not have the heart to decide on as of now. This variable is: will the economy depress again in 2011? I expect it not to, but some experts are quite confident on it. In addition it only takes a conflict or some political instabilities somewhere to change a weak recovery into a slump in a fraction of a second.

What can we expect in 2011 in every sector?




AGRICULTURE
A forgotten classic becoming interesting again. After years of stable behavior we have seen lately this year how commodities like rice, sugar, coffee or cotton have gone up in price considerably. This puts agriculture in the spotlight again, can you think of something which a less inflexible demand that food itself? I don't. With the new prices and its perpetually rising demand we could consider it a wealth reserve.

AERONAUTICS
Hard-hit in 2010 by the economic crisis, 2011 looks slightly better for them if  they can keep their promise of building lighter and more fuel-efficient aircrafts. Airlines are still on a budget, but they are still concerned with the oil price, so if the new aircrafts can deliver with their efficiency promises they still have a chance to shine.

AUTOMOTIVE
Another heavily-bruised contender in 2010. Their products keep getting better and better, but demand has plunged to decade lows and I do not expect it to recover fully in 2011. They have one card up their sleeve though: alternative fuel cars (electrical, natural gas, hydrogen, ethanol, hybrid combinations of the former...). If oil keeps going up in the long-term it could help the sales of these 'green cars' (a debatable expression, look at your country's energy-mix to see where the energy at your wall plug comes from) but not to the point that it covers the losses from the old-school gas cars. Luxury brands are in a totally different situation though, they are expected to be ahead of the curve.

BANKING
This one takes a wild guess. No one really knows what is the true financial health of some big banks or even of the countries they operate in... I see banking as a big set of dominoes, no matter if some of them are well-placed and with good perspectives, it only takes a big one to fall to make the rest tumble (or fall). I would be cautious with banking for 2011.

CHEMICAL & PHARMACEUTICS
Growing expectations. A huge investment in R&D tends to pay off, and thanks to it these industries always surprise us with some breakthrough that makes our lives easier. If this happens in 2011 at the same pace it has been happening until now they will keep growing. But the breakthroughs must happen faster than their actual products' patent expiration dates for them to keep making money so nothing is sure here.

CONSULTING & IT
Mergers & Acquisitions (still a lot to come), common legislative and taxation changes, technological innovation to improve the efficiency of corporations... All of these factors assure there is a lot of work and room for growth. However profit margins keep going down due to an ever  increasing number of contenders and fierce competitiveness between them. Even with this lower profit margins the outlook is still very good for 2011.

CONSUMER ELECTRONICS
This one is heavily dependent on the rare-earth bubble we are expected to suffer through 2011, if it creates a major turmoil in the sector the consequences could be huge. On the other side, technology keeps getting better and cheaper at an astonishing pace, making possible totally new products which can create new markets (the new tablet market is an example). But if the economy as a whole depressed again, they will not have enough with a good product to keep their sales as high as in 2010. 

DEFENSE
States are reluctant to spend more on defense when their economies are not that prosperous; however it only takes a political conflict (or the generally believed possibility of one) somewhere to make their orders grow exponentially. Taking into account the actual political instability and hostilities escalation in the Middle (Iran, Pakistan) and Far east (South, North Korea) they are expected to grow.

ENERGY & OIL
This one is my personal pick. Industrial demand has gone down in 2010 due to the adjustments the crisis has triggered, but it cannot go lower than that in 2011, and with the BRIC's (Brasil, Russia,  India, China) growth expectation the overall number should be much higher. Their operative expenses should be similar, and if the raw materials they use go higher in price they immediately translate this rise to the consumer price. A sure bet.

HEALTHCARE
One word here: 'Obamacare'. If it goes forward or not defines everything because of the size of the US market.

INSURANCE
I have to be neutral on this one. The insurance business keeps growing due to solvency doubts, risk of losing hardly-earned goods... but their margin tends to go down little by little so I am not expecting big growths there.

MARKETING & MEDIA
Marketing budgets are expected to go down, and media dinosaurs face the ever-growing challenge of the internet, internet TV, social media... Their ability to adapt will decide.

MINING
The late behavior of the commodities market, specially precious metals, makes one think they are going to be big in 2011. Gold will not go down given the exceptionally (it keeps being exceptional even if it has been like that for a long time) low money price in the US and Europe. Industrial metals are also expected to keep their growth, thanks to the BRIC's again. 
Special mention for the aforementioned and inevitable rare-earth bubble which assures exponential growth for the rare-earth mining companies.

REAL ESTATE
No matter what the people tell you, it still has to go down. No matter how the money price moves,  the prices are still overrated almost everywhere (exceptions apply for big cities worldwide) and they should go down if they want to sell something. A lot of people is 'trapped' in real estate, and they will not sell low unless they are out of options, but the real estate owned by banks is a totally different case. Banks must sell their housing stock, it is a too heavy burden.

RETAIL
If the economy as a whole depresses again in 2011 a good product will not be enough to keep their sales up, similar to the consumer electronics case. On the other side consumer confidence has been getting better lately, so if the trend continues we should see better numbers than in 2010. Do not expect nothing spectacular though.

TRAVEL & TOURISM
I have to be neutral here, as it is very dependent on one of the other sectors previously analyzed, Energy & Oil. A surge in oil prices would harm their profits, and if the economy depresses again both business and leisure travel would go down with it too. However much the same as in retail, if consumer confidence level keep growing it could give them a much needed boost, after an awful 2010.


Happy 2011 everyone!

No comments:

Post a Comment