John Calverley
Economist John Calverley of American Express Bank last month addressed attendees at The Masters Program, co-sponsored by the National Business Travel Association. He presented a handful of key macroeconomic indicators and summarized his view that while the U.S. economy has experienced a slowdown to cut back on inflation, an "upswing" should continue through 2010. The European Union also is in an upswing, he said, and Japan is recovering from its recently burst bubbles. During the question-and-answer session excerpted here, Calverley helped attendees understand the meaning of various economic trends and their potential impact on travel.
What's your outlook for business travel activities over the next 18 months?
It's good. It's possibly very good. I think we'll see continued good economic growth, and that will drive business travel. This process of globalization is helping to drive travel and means the world is becoming one economy. Investment is becoming a more global activity. So while the economy is growing strongly, barring risks ... I would think the outlook is very good.
What could go wrong and what would happen if it did?
Risks we can't ignore include the housing slump in the U.S. (and if it) gets worse. I don't think it will, largely because the U.S. housing market is not a single market. One I worry about a lot is that the financial sector is booming, and some of that is due to over-exuberance and over-leverage. Some of this is normal in a strong economy, but the question is whether it's getting to be too much. War in the Middle East: there's a real possibility of an attack on Iran. How long would it last? I don't know. The most concerning outcome would be if oil prices went to a very high level and stayed there. An additional concern for the travel industry would be avian flu becoming human to human. These are small probabilities, but they have big effects. Bear in mind, any of these shocks would result in a fast cut in interest rates. Bond yields would go down, and oil prices would probably come off (maybe not in the Middle East crisis scenario, but the others) which would support spending and the economy.
Could you comment on the impact of new entrants to the E.U.?
They are relatively small economies, so they're not having a huge impact. Poland is the big one. With 40 million people, that's quite significant. The others put together probably add up to another Poland. Still, this is adding between 5 percent and 8 percent to the gross domestic product of the Eurozone, so it's not that important altogether. It does have an impact, though, in terms of improving efficiency within Europe. It has a lot of rigidity and is not as dynamic an economy as the U.S., but the effect of widening the E.U. has made it somewhat more dynamic than before. That's partly because of new investments into those areas taking advantage of cheaper labor, and it's also because of the flow of people. It's usually skilled, young people moving to Western Europe, which holds down wage growth and enables the economy to do better. The longer-term issue for the E.U. is how much will it expand.
What's your view of the impact of the Indian economy?
India is becoming much more significant in the world economy, generating extraordinary growth. The trend is still a little below China. China may do 9 percent on average over time, and I suspect India is maybe 8 percent. The Indian economy is still less than half the size of the Chinese economy, so it doesn't have as much of an impact as China. There are two areas where India is impinging on the world. One is servicing, where outsourcing is significant. The other is that India, unlike China, does have world-class companies that are spreading their wings and getting involved in mergers and acquisitions around the world. I hope India would also become a major manufacturing center.
Can you comment on global warming and the impact on the global economy?
It (global warming) does appear to be having some impact on weather, which is keeping insurers very focused. The other question is to what extent governments push alternative energies. From my perspective, the big change in the last year is that the U.S. is now taking this (topic) more seriously. To the extent that we have to pay more for energy, it's a negative for economic growth. I suspect it won't be big enough to make that much difference. The macro-economy is growing at 3 percent to 3.5 percent, and maybe that would slow it down by something like 0.1 percent. But it won't be hugely material.