Vital Signs: IMF World Economic Outlook Update (January 2009)

At the WEF Davos January 2009 Meeting, the session called "Rebooting the Global Economy" began with Matthew A. Winkler (Editor-in-Chief, Bloomberg News, USA) providing a rundown of the International Monetary Fund's (IMF) latest outlook. Going to the source January 2009 World Economic Outlook Update, the IMF gives us this summary:

"World growth is projected to fall to ½ percent in 2009, its lowest rate since World War II. Despite wide-ranging policy actions, financial strains remain acute, pulling down the real economy. A sustained economic recovery will not be possible until the financial sector's functionality is restored and credit markets are unclogged. For this purpose, new policy initiatives are needed to produce credible loan loss recognition; sort financial companies according to their medium-run viability; and provide public support to viable institutions by injecting capital and carving out bad assets. Monetary and fiscal policies need to become even more supportive of aggregate demand and sustain this stance over the foreseeable future, while developing strategies to ensure long-term fiscal sustainability. Moreover, international cooperation will be critical in designing and implementing these policies."

For those of us who lead strategic planning efforts, we work through a rigorous process of establishing a range of possible future scenarios (reference "Managing Amid Uncertainty"/PDF by author Michael Raynor of The Strategy Paradox) and build strategies that are consistent with those scenarios. We use macro economic factors and more industry specific factors.

The IMF's report provides the following macro economic factors:

• Global growth in 2009 is expected to fall to ½ percent when measured in terms of purchasing power parity and to turn negative when measured in terms of market exchange rates.
• The global economy is projected to experience a gradual recovery in 2010, with growth picking up to 3 percent.
• Financial markets are expected to remain strained during 2009. In the advanced economies, market conditions will likely continue to be difficult until forceful policy actions are implemented to restructure the financial sector, resolve the uncertainty about losses, and break the adverse feedback loop with the slowing real economy. In emerging economies, financing conditions will likely remain acute for some time—especially for corporate sectors that have very high rollover requirements.
• Growth in emerging and developing economies is expected to slow sharply from 6¼ percent in 2008 to 3¼ percent in 2009, under the drag of falling export demand and financing, lower commodity prices, and much tighter external financing constraints (especially for economies with large external imbalances).
• The IMF's baseline petroleum price projection has been revised down to $50 a barrel for 2009 and $60 a barrel for 2010 (from $68 and $78, respectively, in the November WEO Update), and risks to this projection are on the downside.
• In the advanced economies, headline inflation is expected to decline from 3½ percent in 2008 to a record low ¼ percent in 2009, before edging up to ¾ percent in 2010. Moreover, some advanced economies are expected to experience a period of very low (or even negative) consumer price increases. In emerging and developing economies, inflation is also expected to subside to 5¾ percent in 2009 and 5 percent in 2010, down from 9½ percent in 2008.

References: IMF World Economic Outlook Update 28 January 2009, PDF)

The World is Your Think Tank

In a recent paper, "The World is Your Think Tank - How to Harness Idea Flow and Top Talent for Competitive Advantage" I wrote about a new business model that can harness both internal and external talent more effectively, including references to Dell, IBM, and Innocentive :

To compete against Asian organizations, North American companies need to continually become more competitive and innovative. As the world becomes increasingly “flat” and hypercompetitive, labour advantages will tip the scales in favour of companies in developing nations. A key determinant of future success for western European and North American organizations will be the ability to attract creative, problem-solving talent.

The world is your think tank proposes a new HR-finance innovation management team and decision-making model to successfully translate idea flow into cash flow. This new model uses an enterprise-wide process for tapping the creativity of employees and the global talent pool. Only the organizations with access to the best ideas and the best-integrated idea management processes will achieve long-term survival.

Organizations must also take the crucial next step of managing the idea flow so they can identify and bring the best ones to fruition. By tightly integrating the HR and finance functions into a new role that sparks and manages idea flow, global talent from anywhere can be transformed into cash flow and balance sheet value.

As the financial crisis has resulted in a global recession in 2009, I am even more convinced that both the HR organization and the CFO have significant responsibilities to ensuring that the best ideas are surfaced and acted upon.