On June 25, and again on August 1, 2012, we published articles on our view of the global economic outlook and its effect on spending for electric power infrastructure and automation. We have now completed an early fourth quarter review of economic and financial conditions based on external resources such as the World Bank. As a result, we continue to retain a cautiously optimistic view for most smart grid market segments. We reported quite accurately on these developments in the mid-2011 Newton-Evans study (Smart Grid: A Reality Check) and again at mid-year this year for these developments:
- • Slowdown in China
- • Critical financial and economic issues facing the Eurozone
- • Minimal growth in Western Europe outside of the Eurozone
- • Retrenchment in economic outlook for the United States (as it remains the single largest country market in the world).
- • World Bank and NGO outlook that suggested continuation of low growth.
At this time, we need to add three more specific concerns to this list:
- • Concerns with Regional Stability in the Middle Eastern nations:
- • Slowdown in Growth Projections for other East Asia Countries- in addition to China
- • Inaction by the U.S. Congress on Fiscal and Energy Policy Matters
Concerns with the Middle East
The ongoing tension in some of the Middle Eastern nations is disruptive in and of itself and could have negative effects on infrastructure investment throughout the entire region. There has been some pullback in previously announced plans to procure hundreds of millions of dollars of systems, equipment, power stations and substation projects in countries with political instability at this time. While still relatively minor, such project deferrals reflect both the growing regional concerns over Iran and Syria, and the still unsettled issues in Libya, Iraq and Afghanistan. The World Bank’s most recent outlook for the region suggests further retrenchment to earlier GDP growth forecasts.
Slowdown in China and East Asia in General
Secondly, East Asian GDP growth rate forecasts have again been cut by the World Bank, as recently as October 7. World Bank officials now anticipate that economic growth in Asia will be 7.2% in 2012, down from the 7.6% projection made in May and lower than last year’s rate of 8.2%. However, growth is expected to rebound next year, spurred by strong demand in developing countries. Some countries, including Vietnam and Mongolia, are outpacing others in their electricity infrastructure modernization investments this year. For 2013, a good bit of the reliability of the outlook will also depend on some sort of rebound in exports of Asian goods and services to the Eurozone countries and to North America.
Inaction by the U.S. Congress
Thirdly, the ongoing failure of the United States Congress to enact both sane fiscal policy measures and a cohesive long term energy policy could become a further drag on the region’s outlook, with little time remaining for the Congress to act before automatic federal spending cuts take effect. If no budget agreements are reached by the end of 2012, this in itself will have an important negative effect on planned electric power industry expenditures during 2013 by at least some of the major investor-owned utilities, and an even more important negative effect on public utilities. In turn this will cause a CAPEX decrease similar to the falloff in 2009 and 2010 from the devastating 2008 financial crisis.
It’s Not All Bad News
On the positive side, sub-Saharan African countries continue to make very good progress with the regional GDP up over six percent again to date in 2012. Regional investments in electric power plant construction, transmission and distribution infrastructure and the addition of millions of new electricity customers over the 2010-2012 period auger well for further near-term and mid-term growth, despite some regional political issues, and in spite of the pessimistic outlook in some other global regions. However, the price-based concerns of these developing nations will favor lower-cost, faster-delivery Asian exporters over some Western companies whose emphasis is on equipment quality and reliability.
“A third of African countries will grow at or above 6 percent with some of the fastest growing ones buoyed by new mineral exports and by factors such as the return to peace in Côte d’Ivoire, as well as strong growth in countries such as Ethiopia,” said World Bank Vice-President for Africa, Makhtar Diop. “An important indicator of how Africa is on the move is that investor interest in the region remains strong, with $31 billion in foreign direct investment flows expected this year, despite difficult global conditions.” Newton-Evans believes that at least several billions of these dollars are flowing into electric power infrastructure and automation projects in the sub-Saharan region.
Latin America – Still Growing
Growth for the Latin America and the Caribbean region was projected at mid-year by the World Bank to slow to 3.5 percent for the full 12 months of 2012, down from 4.3 percent in 2011. Improved financial conditions and growth outside the region “…should contribute to a modest acceleration of growth to 4.1 percent in 2013 before easing modestly in 2014” according to the World Bank. Nonetheless, electric power industry expenditures for the region have continued to be relatively strong over the past 36 months, as reported to Newton-Evans by major manufacturers for the company’s Smart Grid “Reality Check” market studies.
Overall, we see no reason yet to dramatically change our overall outlook for smart grid expenditures or for infrastructure CAPEX spending over the coming 24 months. Western nations likely will continue their investments in smart grid programs with annual growth in such investments hovering in the mid-upper single digits. For the developing nations of the Southern Hemisphere and a good portion of Asia, smart grid investment will likely be even higher, perhaps growing as much as 10-12% over the same period.
New Studies Underway
Newton-Evans Research will again conduct its year-end survey of industry manufacturers and systems integration firms concerning their views of the global outlook (by region) during the fourth quarter. This will supplement our findings from dozens of countries regarding their plans for large operational control systems (2013-2015 World Market for EMS, SCADA and DMS) and our fourth study on utility CAPEX covering the 2013-2014 outlook period (Global CAPEX and O&M Expenditure Outlook for Electric Power T&D Investments: 2013-2014). Once these studies are completed, we will update our outlook for the upcoming periods for our readers at the beginning of the New Year and in our next MARKET TRENDS DIGEST edition.
summary reviews and highlights from completed studies
