GE sees next to no growth in Europe says vice chairman

John Rice says world's third largest company targeting emerging markets; expects almost no growth in Europe's economies
GE sees next to no growth in Europe says vice chairman
Vice chairman says worlds third largest company targeting emerging markets; worried over any Iran-Israel conflict.
By Massoud A. Derhally
Wed 10 Oct 2012 09:30 AM

General Electric (GE), the biggest maker of power-generation equipment, expects almost no growth in Europe's economies and is diverting its attention to other markets as the continent battles a recession and debt crisis that has raised questions about the future of the euro, vice chairman John Rice said.

"Sure," Rice said in an interview with Arabian Business when asked if he was concerned about wider reverberations of the recession in Europe.

"Europe is a big collection of economies, it's a big part of our business," Rice said. "In our projections we assume next to no growth in Europe for the next five to 10 years. It will be modest so we have to look elsewhere for our growth."

In its World Economic Outlook report this week, the International Monetary Fund (IMF) lowered its global growth forecast and said the global economy may get worse if the debt crisis in Europe deteriorates further.

"Low growth and uncertainty in advanced economies are affecting emerging market and developing economies, through both trade and financial channels, adding to home-grown weaknesses," the Washington-based organisation said in its report. "The main focus continues to be the euro area," it added. "The lessons of the past few years are now clear. Euro area countries can be hit by strong, country-specific, adverse shocks. Weak banks can considerably amplify the adverse effects of such shocks. And, if it looks like the sovereign itself might be in trouble, sovereign-bank interactions can further worsen the outcome."

The IMF revised its 2013 growth forecast for advanced economies to 1.5 percent from 2.0 percent and lowered its estimates for emerging market and developing economies to 5.6 percent from 6.0 percent.

"We'd love to see a global economy that's growing at 3 or 4 percent and not 2 percent," Rice said. "The fact that it might grow at 2 percent doesn't change the nature of our strategy. And that's why I am bullish. At the heart of all of this there are still going to have to be investments in infrastructure. I am bullish because under any economic scenario investments will have to be made. Over the long run we're parked exactly where we need to be."

The IMF cut its 2012 growth forecast to 3.3 percent from an earlier estimate of 3.5 percent, with US economic growth estimated at 2.2 percent, Europe contracting 0.4 percent, Asia advancing 6.7 percent while the Middle East and North Africa is set to grow 5.3 percent. US economic growth is expected to drop to 2.1 percent next year before it advances to 3.3 percent in 2014.

"A further escalation of the euro area crisis and failure to address the US fiscal cliff are the main external risks for the region," the IMF said. "If these risks were to materialise, Asia’s open, trade-oriented economies would be faced with lower external demand and other spillovers (for example, on confidence), and growth could be substantially lower."

GE, which is the third largest company in the world and employs about 300,000 people is set to restructure parts of its businesses and save about US$2bn from its cost cutting over the next two years. However Rice declined to specify if there would be layoffs and what size. 

"The waters are going to be choppy for a while and there is a certain amount of headwind," he said. "We can create our own tailwind. Because we do have pockets of cost and efficiency which accumulate in a company over time that we can free up and in some cases we will reallocate that to investors and in other cases we will reallocate that to growth markets so the net impact on jobs is not clear now. I think we will end up being a company that is simpler, more efficiently run and will free up capital for investment in growth markets."

Looking forward Rice said demand by governments around the world to modernise infrastructure would help fuel GE's growth, with the Middle East being a key market for the company.

"This region is the second largest growth region in the world," Rice said. "We expect over time to grow at double digit rates. As we look at close to a 10 percent growth rate in total we expect our growth rate here to be in the teens. That makes it important by itself. If you look at the developments that occur in the Gulf region - if you look at what's happening in countries like Iraq and North Africa these are very important."

As Saudi Arabia, Jordan, and other countries look to build nuclear reactors, GE believes it can compete with companies from South Korea, which won contracts to build four plants in the UAE for US$20bn and French companies that are also set on entering the market.

"We think we can [compete]," said Rice. "We have a good nuclear business and partnership with Hitachi," he said, adding "We have been developing the broadest portfolio of power generation technologies and the ability to access a wide array of fuel choices  because what works in one market may not work in another market."

The wave or protests that toppled leaders in Libya, Egypt, Tunisia and Yemen have presented opportunities for GE as governments vie to overhaul parts of their infrastructure and address people's grievances, Rice said.

"In reality part of the reason part of the reason you have an Arab spring... is that people don't see positive developments in their country coming fast enough," he said.

"For us we interpret that as a need for more infrastructure, better access to health care, electricity for everybody, the basic building blocks of an improving standard of living," Rice added. "We are not deterred by the fact that there is the chance for social unrest in some of the countries, that we do business because we realise that over the long run, part of the solution, part of the antidote is continued investment in infrastructure and we have a role to play."

Backing from the US government helps GE generate new business in the Middle East, he said.

"Yeah I think it helps sure," he said. "It's certainly helpful to have the support of the US government, but we also have to have the support of every government where we operate."

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