globalEDGE Blog - By Author: Alisha Prasad

Part four of this week's blog series explores current events in the sports sector of the leisure industry. 

A few trends are expected to drive the sports industry in 2017 such as the rapid change in the sports media landscape of content creation and distribution rights due to consumers shifting from cable to digital media. Other trends expected are innovation for game days by enhancing the fan experience outside of the sports venue and the use of augmented and virtual reality to enable teams to become more personalized and integrated with sports fans’ daily lives. In addition, it is expected that data and analytics will continue to drive the more business focused side of the industry.

Large consumer good staple companies have been impacted by slower sales at the end of the first quarter of 2017. Companies in the food beverage and consumer staples segments are being hard pressed to adapt to changing tastes, while other large companies are losing market share to technologically adept disrupters.

In part three of our transport manufacturing blog series, we look at high speed trains.

In 2013, the Japanese government set the goal of tripling its infrastructure exports, such as nuclear plants and bullet trains, to a nearly $262 billion valuation in hopes of continuing to bolster its economic growth. Pros for the Shinkansen bullet train include a sound safety record, low emissions, and punctuality, but despite its technological advancements, foreign buyers remain unconvinced of the feasibility of the bullet trains.

Investors are investing more in equities in European markets, which is leading to a rally in the continent, despite fears driven by political uncertainty, such as Brexit and the upcoming elections in France. This is a reversal of 2016, where investors pulled out nearly $100 billion from the equities asset class, and this is seen as being driven by the hopes of a harmonized global expansion. Stock funds in American markets are facing outflows due to investor’s worries of high valuations, and political uncertainty around the current presidential administration's efforts to reach agreements on tax reform and the fiscal spending plan. It is thought that investor confidence in the global economic outlook and its resilience against shocks can be attributed to strong economic signs, such as purchasing manager indices reaching a high in the Eurozone, and easier financial conditions globally.

In part three of this week's trade bloc series, we are taking a look at CEFTA.

Historically, the Visegrad Group, Czech Republic, Hungary, Poland, and Slovakia, were at the cross roads of trade in Central Europe. The Central European Free Trade Agreement (CEFTA) was initially established in December 1992 as a free trade agreement by the Visegrad group, with the goal of eventually further integrating into political, economic, legal, and security of institutions in Western Europe. Currently, Albania, Bosnia and Herzegovina, Macedonia, Moldova, Montenegro, and Kosovo are parties to the CEFTA agreement. Due to changes of the agreement in 2006, memberships are ended once member states of CEFTA are accepted into the European Union, and Balkan states are now covered by CEFTA.

Global interest rates are one of the several factors that can drive merger and acquisition activity in 2017.  The London Interbank Offered Rate (LIBOR) is connected to the United States Federal Reserve Bank’s short-term rate, which plays a role in determining the debt financing rate. If the LIBOR rises, it would make it costly for companies to borrow money, leading to less being paid for acquisitions, however, a gradual rise would soften the material impact of rising rates.

The rapid growth in the fintech industry is revolutionizing the financial industry, forcing traditional banks and new startups to become more technologically advanced. Customer behavior is an area that has a lot of potential for financial institutions to gain insights through data analytics. Data analytics would allow banks and other institutions to have agile systems that learn through experience, where they would automatically refine the algorithms to improve results.

Destination cities in South America, like Bogota and Columbia, have registered double-digit tourism growth in the past year. A positive impact of the currency devaluations is that the exchange rates across the South American region have allowed an affordable opportunity for foreign travelers to go to South America. Investments in infrastructure are also helping to propel the hospitality industry because the improvements help increase access to various markets and boost travel in the region.

Real estate investment trusts (REITs) are a type of investment vehicle which invests in real estate through property and mortgages, and similar to stocks, they can be traded on major exchanges. In the U.S., there are three major kinds of real estate investment trusts (REITs). Equity based REITs own and invest in properties, and are responsible for the value of their assets, and account for the majority of REITs. Mortgage REITs invest in and own property mortgages, and tend to either loan money to real estate owners for mortgages, or purchase mortgage-backed securities. Hybrid REITs are the third kind of REITs, and invest in both properties and mortgages.

In the United States, the gross domestic product expanded by 3.5% during the third quarter, the strongest growth rate in the last 2 years.  The data reflected strong consumer spending in services and investments in buildings and intellectual property. Since the recession ended in 2009, the U.S. economy has grown at the slowest average expansion rate since 1949, averaging about 2%.

The International Monetary Fund has lowered its global outlook for the 2016-2017 year, despite a fairly strong performance during 2016. The U.K.’s vote to leave the European Union has led to uncertainty macro economically and may lead to a negative impact due to damaging investor confidence and market sentiment. The IMF is projecting that the advanced economies will hold steady with growth at 1.8% for both 2016 and 2017, and the overall global growth is projected to increase by 3.1% in 2016, 3.4% in 2017.

It is expected that Beijing will tighten capital controls after the foreign exchange reserves fell by nearly $70 billion due the Central Bank’s policy to prevent the Renminbi from further depreciating due to high capital outflows. According the Institute of International Finance, October was the 33rd consecutive month of net outflow of capital.

Global interest rates currently span a wide range; from Switzerland, at a negative 0.75%, to Belarus at 28.5%. Overall, 45% of the world’s central banks lowered their rates in the last year, 29% increased their rates, and the remaining 26% left their rates unchanged. Central banks are often nationalized institutions that are usually independent from the government, but whose privileges are established and protected by law.

Through October, the Eurozone’s economy grew at the fastest pace of the year. The rally in in United Kingdom government bonds and a higher chance of inflation has caused 10 year government bonds in the UK to now yield more than double the levels they did in August. Due to the interconnected global bond markets, the yields in Eurozone bonds rose as a result. The raise eased pressure on the European Central Bank, whose quantitative easing program prevents it from buying any debt that yields under the deposit rate of -0.4 percent.

Nigeria is currently in a recession after unpegging from the U.S. dollar, and the decreased dollar supply has reduced output and created obstacles for companies to pay their debts. A challenge that Nigeria is trying to overcome is the lack of investment in infrastructure during the oil boom years which would have allowed for more sustainable growth.

Research conducted by Goldman Sachs predicts that the global commercial drone market is expected to grow to $20.6 billion USD and the compound annual growth rate is supposed to grow by 41% from 2016-2021. In North America alone, the industry is forecast to have 1.4 million commercial drones in use by 2025. 

Venezuela has one of the largest oil supplies in the world, and oil serves as the primary source of income for Venezuela’s economy. The large drop in prices has severely hampered its ability to import products, and has prompted a rapid rise in inflation. The IMF is forecasting that inflation will hit 700% by year end 2016, compared to the Venezuelan government’s forecast of a 180% increase in inflation.

Central banks are responsible for determining the monetary policy by setting the interest rates to balance investments and savings, which helps to keep economies fully employed and inflation stable. The natural rate is the interest rate that helps to achieve the balance, and federal reserve policy makers believe that the rate is at 3%, down from 4.5% prior to the recession. The 1.5 percentage point decline in the natural interest rate provides less ability to counteract future economic shocks.

A study conducted by the University of Cambridge and Nesta, in partnership with KPMG, recently covered the development of the alternative finance industry in the United Kingdom. In the U.K., the industry expanded by 84% in 2015 £3.2 billion, and equity based crowdfunding was 15.6% of the total amount of seed and venture stage equity investment in the United Kingdom.

From 2012 and 2015, it was estimated that budget deficits for governments in the Eurozone were reduced by 40% because of lower borrowing costs. The reduction in the cost of borrowing can be attributed to central banks policies. Low bond yields allow for governments to reduce their deficits and possibly lighten their current austerity measures, and lately, many yields have fallen into negative territory.

By 2050, the world’s population will have grown by 32%, but the working age population (ages 15-64) will have only expanded by 26%. Amongst the more advanced economies, by 2050, the working age population will have shrunk 26% in South Korea, 23% in both Germany and Italy, and 28% in Japan. India’s population is expected to grow by 33%, however Russia and China’s working population will contract by 21%.

Economists warn of a sudden recession due to the uncertainty of Britain’s exit from the European Union and the lack of a strong plan for the future with minimal further disruption of the global markets. Over the past 2 weeks, the British pound has dropped to record 31 year lows against the American dollar, and the Bank of England recently stated that it would likely combat the financial turmoil through quantitative easing and rate cuts. Current economic predictions of households delaying consumption and corporations postponing investment would further lower the demand for labor and increase unemployment. However, despite the potential signs of further economic turmoil, there are silver linings that are becoming more apparent, such as emerging markets and the role of uncertainty.

Have you visited the globalEDGE Business Beat recently? The Business Beat, hosted by Tomas Hult, is a great way learn about current topics related to international business and covers a wide variety of interesting topics. The latest topics include globalization in the Greater Lansing area, infrastructure development, Vector Marketing, and entrepreneurship. Check out the globalEDGE Business Beat page today!

Although the Syrian civil war are has partitioned Syria into several autonomous regions, trade has continued to flow across front lines, largely aided by truck drivers. These truck drivers are responsible for crossing battlefields and checkpoints to deliver consumer goods, such as food, cars, and oil.

As the capabilities of artificial intelligence and technology continue to grow and become more versatile and sophisticated, there are more opportunities for continued growth, but these advances can have a wide range of impacts across many industries in the global economy. Artificial intelligence encompasses a wide spectrum of technological advances, such as robots, augmented reality, autonomous vehicles, and algorithms.

The global debt is currently around $60,244,106,843,495, and according to the CIA’s World Factbook, there are only two countries, Liechtenstein and Macau, that don’t owe any sovereign external debt. Both countries are fairly small, and are both resource rich, thus helping each sustain a steady flow of cash into their economies. Macau is a semiautonomous region of China, and is home to the world’s largest casinos. Lichtenstein is one of the smallest European countries, and is the largest manufacturer of fake teeth and sausage casings. Both countries don’t use their own currencies, with Lichtenstein using the Swiss franc and Macau using the Hong Kong dollar, so their governments are unable to print more currency and utilize inflationary financial policy.

In recent weeks, there has been a lot of coverage of various commodities, such as oil, and the role they play in the global economy. Two other commodities that are influencing the global economy are lithium and coffee.

Environmental, Social and Governance criteria (ESG) are the standards that investors are increasingly using to evaluate a corporation’s operations and performance. About one-third of companies have reportedly received inquiries from sustainability analysts, and ESG criteria have started to shape their business strategies. Investors seeking companies that meet ESG criteria value returns, but don’t prioritize profits over companies that don’t fit into their ethical frameworks.

“Fintech” has been used lately as a catch-all for the development of new technologies that have challenged and changed the more traditional aspects of finance, such as wealth management, lending, insurance, and payments. A current key challenge that the financial technology industry is facing is if the industry can continue to grow while facing increasing amounts of financial regulation.

Somali-based piracy cost the international community over $6 billion in 2012, but the decrease over the past few years has been due to increased reliance on maritime security. The decrease in piracy around the Eastern coasts of Africa can be seen as a success; however, piracy is increasing off the coast of Nigeria and the Gulf of Guinea. The piracy in the Gulf of Guinea is likely due to the lack of prevalent law enforcement, the easy access to illegal markets, and a target rich environment.

Ethiopia plans to become a top regional exporter in electricity under a new 2015-2020 development plan. It is attempting to tap several rivers for power generation, which is a part of its plans to boost its manufacturing, help to industrialize its agrarian economy, and to export power to countries in Northern and Southern Africa. A $4 billion deal was signed with an U.S.-Icelandic firm in 2013 to build a private-run 1000 megawatt geothermal plant and more power generating projects are being negotiated with other international companies. Egypt is dependent on the Nile, and is concerned that the Renaissance Dam would reduce the river’s flow. In addition, Kenya stated that the Gibe 3 dam and its related irrigation scheme could reduce the volume of water in its Lake Turkana. Low levels of rainfall this year have had an adverse impact on existing dams, and currently four hydropower plants are producing at low levels due to low water levels. There are several more concerns about these projects, namely the current ongoing severe drought and the environmental ramifications.

In the G-20 summit this past weekend, the world’s finance ministers agreed not to engage in currency wars to boost exports. Currencies in emerging markets have been battered since the financial crisis began in 2007. Traditionally, countries expect a payoff in a boost of exports when their currency is weak; however, it’s not been the case this time around. This is the case not only due to slowing growth in China and rapidly decreasing oil prices, which has hurt commodity exporters, but also the Federal Reserve’s increase in interest rates. The possibility of interest rate increases in the United States has put pressure on currency markets.

A referendum is a vote in which nearly anyone of a voting age can take part in, and can cast a “Yes” or “No” vote to a question, and whichever side has over half of the votes cast wins. U.K.’s Prime Minister David Cameron announced a referendum on June 23, 2016 to vote on whether the United Kingdom should remain a part of the European Union. Britain held a referendum in 1975, and voted to stay; however, there are many who called for another vote because they argued that the European Union has changed over the past 40 years.

The Bank of Japan reduced interest rates to below zero on Friday, after years of keeping them in the positive range. The negative interest rates will be placed initially on reserves valued at 10-30 trillion yen and will apply only to new reserves that financial institutions deposit at the central bank. The goal is that the reduction would cause the real interest rates to decrease, thus stimulating consumption and investment. This policy will decrease rates for lending and isn’t supposed to negatively affect banks. The Bank of Japan will be dividing the account balances into 3 tiers, and the interest rates placed depending on the type of reserves that are placed in the Bank of Japan.

A new study conducted by the international law firm Denton in association with the Mining and Investment in Latin America 2015 conference found that many companies, despite current conditions, have remained optimistic. The survey, which was carried out among mining companies and financiers who are active in Mexico, Central and South America indicated that 66% of those interviewed are somewhat optimistic that there will be an increase in investment over the next 12 month. The mining industry is facing challenges with current economic conditions and rout in the commodity markets, but corporate social responsibility was not regarded to be that high of a concern. Corporate social responsibility is important because due to issues, projects worth billions of dollars have been stalled.

The United Kingdom is slated to have a referendum by the end of 2017 on whether it is to remain a member of the European Union or leave, however negotiations are underway by the Conservative government to see if a new agreement can be reached. The United Kingdom can risk facing major repercussions both domestically and internationally if they were to leave. Internally, it can raise the risk of political instability both within the Conservative party and the viability of the political union between England and Scotland, Wales, and Northern Ireland, and externally, the concern lies in the future relationship between the U.K. and the European Union as well as potential future trading agreements.

Global markets have faced a rough beginning in 2016, and Latin America has been no exception. The World Bank projected that Latin America would not be growing at all in 2016, and the International Monetary Fund is projecting the growth at below 1%. In the last five years, Latin America has faced declining growth, and 2016 brings concerns of political friction and subsequent economic changes.

The World Bank has reduced its forecast for global growth for a third year in a row due to weakness in the developing world. Global markets hit a rough patch in the beginning of 2016 due to weak Chinese data, the fall of currencies in emerging-markets, decreased stock prices, and an increase in the value of the U.S. dollar. The World Bank’s forecast involved three optimistic assumptions for global growth, being that commodity prices will stabilize and that the Chinese government will able to manage the transition away from rapid and unsustainable growth. The other assumption that was made in the forecast was that the interest-rate hike by the United States Federal Reserve wouldn’t damage the U.S. economy or have a negative impact in the global financial market.

The United States Federal Reserve’s recent rate hike after a decade has prompted fears of financial turmoil in emerging markets. This rate hike is significant to global markets because the strengthening of the U.S. dollar could cause trouble in countries where firms have borrowed heavily with American currency, and the weaker domestic currencies could make it more difficult to pay back the dollar debt. In 2015, investors have withdrawn $500 billion from emerging markets, and this new development could prompt a larger outflow in the coming months from emerging markets.

El Niño is a weather and climate phenomenon which is characterized by unusually warm sea and surface temperatures and can be measured by ocean temperatures and atmospheric convection activities. The change in the sea temperature can affect the timing of when the heat transfers from the oceans into the atmosphere, which can affect temperature and rainfall patterns. Historically, El Niño has immediately impacted the agriculture sector, but its effects can also be felt later in the global marketplace.

The low oil prices have had both positive and negative effects in the short-term, but the long-term effects are less known and are thought to have wide and long-term impacts on the global economy. Low oil prices have reduced gas prices and have allowed people to save money at the pump. Lower gas prices can help people who have lower incomes and can also reduce costs on energy bills for those who live in cold climates. The automotive industry has sold more cars while gas has been less expensive, which has caused total vehicle sales to climb from 12 million per month to nearly 18 million. In addition, transportation companies benefit from lower fuel costs, as does any business that has to pay fuel bills to power its operations.

This coming week will provide several indications of the recovery of the global economy, amid increasing concerns of another economic downturn. A major point of worry for economists is that there are limited tools that Central Banks can use globally to avoid another recession. China is expected to release data that is leading to expectations of an increase in stimulus measures to avoid a sharp downturn. The European Central Bank has been attempting to raise inflationary pressure to spike a raise in prices. Inflation numbers for some member countries are expected to be published this coming week and are expected to confirm that prices fell by 0.1 percent annually last month. Banks globally have been taking either a more hawkish stance, where there may not be an extension of quantitative easing, or a stance of allowing more money to enter the economy through increased stimulus.

There are several factors that differentiate an emerging market from a frontier market. These factors can vary from liquidity in the markets, to risk intensity, to return on investments in the future.

India and China are both among the fastest-growing economies in the world. Despite the global economy being in financial turmoil after China's projected lower economic growth, India is trying to project itself as a safe investment with continued economic growth. Prime Minister Narendra Modi called Indian business leaders and economists for a three-hour summit to discuss how to steer India’s economy in a positive direction after China’s slowdown was announced.

As of late, there has been a lot of talk of whether the United States Federal Reserve Bank will raise interest rates in September. Typically, the Federal Reserve would raise its benchmark interest rate when the economy is growing too fast to encourage people to spend less and save more. This slows the economy down, thereby reducing inflationary pressure. A raise in interest rates signals a perception that inflation is rising and that the economy is healthy and growing.

Iraq’s economic stability has been impacted by budget deficits that have been worsened by low global oil prices. Since early 2014, Iraq has experienced massive economic decline due to territory that has been lost to militants in extremist groups, such as the Islamic State.

Sporting events, such as the Olympics, have been thought to be large magnets for foreign investment, and large sums of money are often spent on developing state-of-the-art facilities. These sporting events have played a large role in raising awareness for the host country on the global stage and developing infrastructure. The 2015 Special Olympics World Games were recently hosted Los Angeles, California, and Brazil will be hosting the 2016 Summer Olympics in Rio de Janeiro. China recently won the bid to host the 2022 Olympics, but the International Olympic Committee has been struggling to find suitable cities to host the 2024 Summer Olympics. However, lately there has been debates regarding the economic benefits of hosting the Olympics.

El Niño is a weather and climate phenomenon that is characterized by unusually warm sea surface temperatures. During the El Niño, warm water moves from the Western part of the Pacific Ocean to the Eastern equatorial Pacific Ocean, often accompanied by a change in trade winds. This occurrence can cause significant economic impacts, which could directly impact the agricultural economy first, but later can be felt in the global marketplace.

The U.S. and the EU agreed on Thursday to lift nuclear-related sanctions against Iran in exchange for Iran’s compliance with international inspections and restrictions on its ability to enrich weapons-grade material. The removal of these sanctions could assist in reviving Iran’s economy, which has stagnated in post-sanction years.

In the past few years, globalization has become more apparent in its role in the global economy, where more people, countries, and economies are becoming interconnected with one other. In the book The Lexus and the Olive Tree, Thomas Friedman attempts to break down the role that globalization has played and how it can be considered as a new sort of international system for the future.

For the first time, Saudi Arabia has opened its markets to foreign investors in hopes that in can attract more international investments in the country. Saudi Arabia has experienced solid growth over the last decade due to hundreds of billions of dollars in revenue from the sale of oil and is attempting to maintain its local spending plan after crude prices have tumbled. The opening of the stock exchange can play a role in reducing its dependence on oil as a driver in its economy and also aid in its future economic growth.

Nigeria is a country that is steeped with opportunities and chances for economic growth, but has its problems and challenges as well. Between 1990 and 2010, Nigeria re-based its GDP, which resulted in an 89% increase in the economy's estimated size. Now, Nigeria has the largest economy in Africa with a nominal estimated GDP of  $590 billion, surpassing South Africa’s $340 Billion, and has maintained over the past decade an average growth rate of 6.8%, higher than the West Africa sub-region.

Latin America has often been considered one of the largest areas for economic growth; however, at the end of the first fiscal quarter, the region has contracted. Despite most economies in the region continuing their steady growth paths, Argentina, Brazil, and Venezuela have decreased in their growth, with only Chile and Peru seeing an increase of growth. This can be attributed to global conditions, as other countries, such as China and Japan have also showed similar signs of decreased economic growth.

Oil prices dipped on Monday due to the rising value of the dollar and the potential for an oversupply of oil. Global conditions and the turmoil in the Middle East caused oil barrel prices to rise, especially due to the gains that Islamic State militants made in Iraq after seizing the provincial capital of Ramadi. In addition, the dollar continued to rise against other major currencies, thus making raw materials less affordable to holders of the euro and other currencies.

Greece has been in constant negotiations with other European countries and institutions over Greece’s debt load, which if not resolved, can lead to another financial crisis. The European Central Bank and the International Monetary Fund are both creditors to Greece, and Greece is expected to repay the IMF nearly 750 million Euros on Tuesday, but the remainder of the debt repayments total nearly 12 billion Euros for the rest of the year. While Athens has authorized its treasury to make the loan payment to the IMF, Greece will continue having trouble making the upcoming payments unless the creditors agree to give more aid as a part of the 240 billion euro bailout program.

As of late, the value of the dollar has appreciated compared to other currencies, and one currency that the effects are evident in is the euro. The fall of the euro has been increased due to the willingness of investors to move their assets out of the Eurozone, and into “safe havens” like the U.S., Denmark, and Switzerland.  The difference between the European and American monetary policies has been a catalyst for investors reallocating their portfolios, looking for bigger gains. A major difference playing a role is that euro will be further pushed down against the dollar, as the European Central Bank is holding interest rates, while the U.S. Fed Reserve is looking to raise the rates.

Globalization can be defined as the process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade, investment, and information technology. It is not a new concept, and has been present for thousands of years, as people and corporations have been buying and selling goods and services, along with exchanging ideas across long distances.

With the proposed re-establishment of normal diplomatic relations and the potential easing of economic sanctions between the United States and Cuba, trade relations between the two nations have begun to thaw. Cuba offers a new market of avid consumers, and an economy that could potentially be a key contributor to the Caribbean region. Even though the embargo may potentially be lifted, there are several challenges that remain to be overcome for Cuba and U.S. to be successful as trade partners.

In recent years, immigration has been a topic that has been widely discussed globally, from the U.S. to the EU to the International Monetary Fund and the World Bank.  There are other aspects of immigration that are often not considered that tend to slip through the cracks of the political quagmire, and those aspects can influence the global economy and can be far-reaching.  One such aspect is remittance, which is the transfer of money from a worker in a foreign country back to individuals back in their home country, typically family members and friends.

Globalization is occurring and the world is growing more interconnected and accessible, and as a result it is now easier to travel to other countries. Cultural awareness is increasing, and as a result, tourism is too as people want to experience the culture of other countries. The tourism industry accounted for 9.5% of the world’s GDP in 2013 (U.S. $7 trillion) and currently employs 266 million people worldwide. In perspective, the global tourism industry employs 1 in 11 people on this planet. One aspect related to tourism, that is often not considered, is that with benefits and new opportunities, come new challenges.

Recently, Hershey blocked Cadbury's products from being imported to the United States by reaching a settlement with Let’s Buy British Imports, or L.B.B. These agreements forced L.B.B. to stop exporting Cadbury chocolates made overseas to the United States.