The World in 2012

There is a general sense of gloom and doom in the global economy as we enter year 2012. The recovery after the global financial crisis of 2008 did not sustain in 2011. While the global economy picked up in 2009 and 2010, there were doubts about the sustainability of that growth for 2011 and ahead. Today, many of the world's biggest developed economies are heading into recession. How does 2012 look?

Governance and elections

The biggest highlight of year 2011 was the people’s movement across the world – whether it was the Arab Spring or the Occupy Wall Street protests. The impact of this movement was so huge that the Time Person of the Year was “The Protestor”. As we enter 2012, the policy paralysis seems to be endemic globally. While our leaders may be an extreme case of the malaise, even the western world is suffering the disease as politicians have not been able to resolve conflicts. It was difficult for the leaders of the western world to come to a consensus on the Greek sovereign debt problem.

And going forward, the situation will only worsen as politicians focus on their immediate problems at home. Each country will fight to save their respective economies and jobs at home. Five permanent members of the United Nations Security Council can have a change in political leadership. The US, France and Russia go to polls this year. China is expected to have a party congress in October. Other countries like Mexico, Venezuela, Kenya and Taiwan to will have elections this year.

In India, five states will go to polls in the first quarter. Uttar Pradesh, Punjab, Uttarakhand, Manipur and Goa will have elections. Thus, the focus of lawmakers in India will remain on garnering seats and there is no doubt that the economy will take a back seat.

Economy

Global economies are not in the best of health as we enter 2012. Europe will continue to face problems thanks to the government debt crisis, but there is some hope that the rest of the world may be able to do as well as it can in such times. The US and emerging countries are expected to be in the driver’s seat as far as the global economy is concerned. The US economy is expected to grow at 2 percent according to Morgan Stanley, and jobs in the US will remain the key data to monitor.

The sovereign debt problem of weak European countries, especially Greece, continues to weigh heavily on growth. The sovereign debt crisis which has vast repercussions across other European countries and the Eurozone’s banking industry. Economists are expecting that most countries in Europe will see a recession this year. If growth in China falters, there will be a widespread impact globally. Any recovery this year in the global economies will be only sluggish.

The Indian economy too is struggling. Inflation and interest rates are very high and have clamped down industrial production and infrastructure investments. The weak rupee is another problem as imports become expensive, and as India is a large exporter of crude oil, this will hurt us further. For 2011-12, the government has cut the GDP forecast to 7.5 percent from the earlier 9 percent. For 2012-13, the government has not provided any forecast yet, but said: "We expect some revival next year but the outlook remains mixed. If Europe slides into proper recession, with all the attendant financial contagion that will no doubt affect other nations, the entire world economy will slow down and we could also be impacted.”

Markets

When economies are doing badly, there is little reason to expect stock markets to earn returns. The Indian markets lost 25 percent in 2011 thanks to the corruption scandals, policy paralysis, high inflation and interest rates, weak corporate earnings and exit of foreign funds.

At this stage, the key to the performance of the Indian market remains inflation. If inflation comes under control, interest rates will come down. Also, the rupee will appreciate against the dollar if interest rates fall, which will help India. With lower interest rates, the investment cycle will begin. Typically markets take one-two quarters after a rate cut cycle to rally. If oil prices fall, it will benefit markets. Of course, the macroeconomic situation will weigh heavily on Indian markets as the fiscal deficit is likely to only go up thanks to the government adopting more populist measures like the Food Security Bill.

Most experts say that the stock market will continue to stay low or could even fall further in the first half of 2012. If things improve subsequently, then there may be some recovery.

Wealth

The Indian markets have lost Rs 19 lakh crore in terms of market capitalisation in 2011, which has negatively impacted the wealth of every investor.

For the wealth manager, it has been an uphill task. Except for gold, which has gained for 11 consecutive years, closing 32 percent higher in 2011, most asset classes have done poorly. This is the challenge faced by wealth managers for 2011 and the outlook for 2012 isn’t too bright right now.

Globally too, wealth managers have been taken by surprise. The fall in the euro, the US dollar’s appreciation, weak stock markets, credit rating cuts for countries, etc have meant that there are few safe havens. The Swiss franc turned so strong against the euro that the central bank had to intervene.

There was a move by countries to consider raising taxes for the wealthy. Legendary investor Warren Buffett too endorsed the idea that the rich should pay more taxes. Italy, France and Spain moved to tax the wealthy more heavily.

On the positive side, there was a big push by global majors such as Citigroup, JP Morgan, Schroders and Bank of America to embrace the mobile tech revolution. Wealth managers are also looking hard at themselves to evolve their brand and services to stay more relevant for their customers. Asia has emerged as a mainstream market for wealth managers with most banks expanding in Singapore.

The opportunity for wealth managers globally, and particularly in India, is immense as the rich increase in numbers. The global uncertainty means that a do-it-yourself approach to investments is surely the simplest path to losses. In such times, the wealthy investor is likely to need more structured products encompassing several asset classes with diversification across countries. The opportunity is certain; it may only take a little longer.

Gartner’s Technology Predictions for 2012 and Beyond

Selected from across Gartner's research areas, the consulting firm, has come out with technology predictions for 2012 and ahead.

"The continued trends toward consumerisation and cloud computing highlight the movement of certain former IT responsibilities into the hands of others," said Gartner. As the world of IT moves forward, Gartner added, CIOs are finding that they must coordinate their activities in a much wider scope than they once controlled. IT departments need to adapt swiftly or be swept aside

"Any organisation which wishes to accelerate in 2012 must establish in itself a significant discipline of coordinating distributed activities," Gartner said. The IT organisation of the future must coordinate those who have the money, those who deliver the services, those who secure the data, and those consumers who demand to set their own pace for use of IT.

Here are Gartner's top predictions for 2012:

• Emergence of low-cost cloud services

Industrialised low-cost IT services will change what companies understand of pricing and value of IT services, and this new model will reset the value proposition of IT over the next three to five years. Gartner added that the projected $1 trillion IT services market is at the beginning of a phase of further disruption, similar to the one brought in by low-cost airlines. By 2015, low-cost cloud services will cannibalise up to 15 percent of top outsourcing players' revenues.

• Investment bubbles in consumer and enterprise social software companies to burst

The investment bubble for consumer social networks will burst in the next two years, while that for enterprise social software companies will burst by 2014. The marketplace for the enterprise social segment is unusually aggressive, with several vendors with overlapping features competing for a finite audience. In the enterprise market, many small independent social networking vendors are struggling to reach critical mass at while megavendors, such as Microsoft, IBM, Oracle, Google and VMware, have made substantial efforts to penetrate this market.

• More and more enterprise email users will rely primarily on non-desktop clients

The shift from the desktop to other clients for enterprise applications will be breathtaking. Market opportunities for mobile device management platform vendors will soar. By 2016, at least 50 percent of enterprise email users will rely primarily on a browser, tablet or mobile client instead of a desktop client.

• Mobile application development projects will outnumber PC projects

Smartphones and tablets represent more than 90 percent of the new net growth in device adoption for the next four years, and increasing application platform capability across all classes of mobile phones is advancing rapidly. Innovation is moving to the edge for mobile devices. By 2014, Gartner estimates the vast majority of client-side applications being mobile only or mobile first for these devices. By 2015, mobile application development projects targeting smartphones and tablets will outnumber native PC projects by a ratio of 4-to-1.

• More enterprises to make proof of independent security testing a precondition

While enterprises evaluate the potential cloud benefits in terms of management simplicity, economies of scale and workforce optimisation, they also need to review if such cloud services can resist security threats and attacks. Inspectors' certifications will eventually become a viable alternative or complement to third-party testing. By 2016, 40 percent of enterprises will make proof of independent security testing a precondition for using any type of cloud service.

• Even Global 1000 companies will store customer-sensitive information in the public cloud

With the global economy facing financial pressure, organisations are being forced to reduce operational costs and become more efficient. As a response, Gartner estimates that more than 20 percent of organisations have already begun to selectively store customer-sensitive data in a hybrid architecture, which is a combination of their in-house solution with a private and/or public cloud provider in 2011. By 2016, more than 50 percent of Global 1000 companies will have stored customer-sensitive data in the public cloud.

• IT expenditures to move out of the IT department’s budget

A new breed of managers is driving the next generation digital enterprises and many individual employees no longer need technology to be contextualised for them by an IT department. These people are demanding control over the IT expenditure. Thus, CIOs will see some of their current budget simply reallocated to other areas of the business. In other cases, IT projects will be redefined as business projects with line-of-business managers in control. By 2015, 35 per cent of enterprise IT expenditures for most organisations will be managed outside the IT department's budget.

• More finished good and assemblies consumed in the US will be sourced from the Americas

Political, environmental, economic and supply chain risks are causing many companies catering to the US market to shift sources of supply from Asia to the Americas, including Latin America, Canada and the US. Escalating oil prices globally and rising wages in many offshore markets, plus the hidden costs associated with offshore outsourcing, erode the cost savings that didn't account for critical supply chain factors, such as inventory carrying costs, lead times, demand variability and product quality. By 2014, 20 percent of Asia-sourced finished goods and assemblies consumed in the US will shift to the Americas.

• Financial impact of cybercrime to grow at 10% a year

As IT delivery methods meet the demand for the use of cloud services and employee-owned devices, new software vulnerabilities will come into play, and financially motivated attackers will become more innovative. Along with new vulnerabilities and more targeted attacks, bottom-line financial impact because of successful cyber-attacks will increase. Through 2016, the financial impact of cybercrime will grow 10 per cent per year, due to the continuing discovery of new vulnerabilities.

• Cloud services to charge energy surcharge

While cloud operators can make strategic decisions about locations, tax subsidies are no long-term answer to managing costs, and investments in renewable-energy sources remain costly. Some cloud data centre operators already include an energy surcharge in their pricing, and Gartner believes more operators will charge this surcharge. By 2015, the prices for 80 percent of cloud services will include a global energy surcharge.

• Most Fortune 500 companies to struggle at using data for competitive advantage

Though the volume of data is increasing with smart devices and growing Internet connectivity, the complexity, variety and velocity with which it is delivered combine to amplify the problem substantially beyond the simple issues of volume implied by the popular term "big data." Most organisations are not prepared to address the technical and management challenges of big data; and few will be able to effectively exploit this trend for competitive advantage. Till 2015, more than 85 percent of Fortune 500 organisations will fail to effectively exploit big data for competitive advantage.

Source: Gartner