GIA Highlights Need to Assess Opportunities from Global Stimulus Packages

April 23, 2009. The global stimulus packages announced by various governments in response to the current financial crisis impact companies along the value chains of many industries. The challenge will be to identify quickly the impact, the favorable circumstances and the spending requirements in order to act on the opportunities that arise.

How can you tap into the opportunities presented by these packages? How will different industries be affected?

The total announced global stimulus packages to date amount to USD 2,048 billion.

fiscal stimulus packages_2

Precise details on how individual companies can benefit however, have not been fully determined in most cases, while many of the packages merely extend funding for projects and programs already up and running.

All the stimulus packages face a trade-off between effectiveness and rate of impact. While tax cuts are the quickest to implement, they are usually considered less effective than direct public spending.

Industry perspectives

While the impact of the stimulus packages will be felt across many industries, some stand to benefit more than others. M-Brain (formerly GIA) has identified some key concerns for various industries with regards to the stimulus packages:

Automotive – Will governments support acquisitions or consolidation?
– What kind of specific employment support, if any, will this sector receive?
– What technologies are at the forefront for government support?
– How will the supplier network benefit from the support?
Chemicals – Will the stimulus packages affect raw material prices?
– Will the stimulus packages affect environmental regulation in this sector?
– Which customer segments of this industry will receive the most support?
– Do the stimulus packages include support for innovation and R&D?
Construction &
Building Technology
– What will be built and where?
– What is the tender or application process for these projects?
– Will there be direct support for private projects or businesses?
– Is there support also for non-infrastructure projects such as housing?
Healthcare &
Pharmaceuticals
– Does the stimulus have implications on the market for generics?
– Does the stimulus have implications on the consolidation of the industry?
– What are the plans for modernization, digitization, and reform of public healthcare?
Manufacturing &
Industrial Goods
– Which industrial sectors will receive the most support?
– Will some companies receive direct support in one form or another?
– How will governments support R&D and innovation activities?
– What technologies, if any, are at the forefront for government support?
Materials, Energy
& Utilities
– How will the stimulus packages affect the dynamics of the markets for natural resources?
– What are the impacts of the stimulus packages on the development and implementation of renewable energy?
Information Technology,
Media & Telecom
– Will there be government supported projects related to broadband or other communication networks?
– Will the stimulus packages have implications on the emergence of new platforms or business models?
Retail, Consumer
Goods & Services
– How will the stimulus packages affect consumer behavior?
– How will disposable income develop in the supported markets?
– Which retail and consumer good segments will be the winners?
– Will there be new business models emerging as a result of the stimulus?
Trade, Logistics &
Transportation
– Will governments support trade or are they focusing on domestic markets?
– What kind of spill-over effects can be expected across countries?
– How will the stimulus packages affect various modes of transportation?
– How will trade flow dynamics change as a result of the stimulus?

While the impact of the stimulus packages will be felt across many industries, some stand to benefit more than others, particularly those involved in:

– Infrastructure projects and transportation networks
– Public healthcare and social security programs
– Investments in sustainable energy

Regional perspectives

Below, we take a quick look at the stimulus packages of the world’s four largest economies, which make up 82% of the total announced packages to date.

USA* Japan China* Germany
Size of package (USD) $787 bln $207 bln $586 bln $109 bln
Size of package (local currency) USD 787 bln JPY 22 trn CNY 4 trn EUR 82 bln
Timing Stimulus effect is expected to last as far as 2015, with most effect in 2010 (half of package) Details not disclosed yet, but presumably the effect will continue through 2010 Began in Q4 of 2008 and extends through 2010 Mostly front-loaded for 2009, but total effect is expected to distribute evenly between 2009 and 2010
% of annual GDP 5.9% 4.0% 13.3% 3.4%
% tax cuts 36% 0% 15% 68%
Administration Mostly state-level projects and investments and state funding, subsidies to small-businesses in a few focus industries, additionally some federal tax relief and subsidies Details not disclosed yet, but focus is on supporting employment and business activity 70% provincial or local government spending, 30% central government investments, ten key industries in focus of support Mostly various forms of tax relief, additionally some federal and municipal investment projects

All the stimulus packages face a trade-off between effectiveness and rate of impact. While tax cuts are the quickest to implement, they are usually considered less effective than direct public spending. Infrastructure investments on the other hand, are considered by many to be the most effective stimulus, but they are slow to implement. Below, we compare the approaches taken by China and by North America.

USA*

The American Recovery and Reinvestment Act of 2009, commonly known as the “stimulus bill”, represents the largest effort by any government to rescue a declining economy. The bill amounts to an estimated $787 billion over ten years, divided between $501 billion in spending and $286 billion in tax cuts. This corresponds to approximately 5.9% of annual GDP.

The stimulus package aims at spending 23% of the total amount by the end of 2009, 74% by the end of 2010, and 91% by the end of 2011. Key industries to be targeted are renewable energy, transport and infrastructure modernization and healthcare reform.

Most of the stimulus package will be implemented and administered on a state-level. Each state is now in the process of planning how the funding will be distributed and made available to businesses.

China*

The 4 trillion Yuan ($586 billion) package by China, corresponding to some 13.3% of annual GDP, is the second largest in absolute terms and largest of any country as percentage of GDP. The plan was also launched earlier than most other ones, and positive effects can already be observed.

According to premier Wen Jiabao, the purpose of the stimulus package can be summarized in five aspects:

– Boost domestic demand and improve fiscal income
– Adjust and revitalize the industrial economy
– Promote technological upgrading
– Improve the social security system
– Achieve financial stability

The stimulus package has a relatively high emphasis on spending compared to tax cuts. There are seven focus areas:

– Transportation and power grid
– Post-disaster reconstruction
– Rural development
– Environment
– Affordable housing
– Independent innovation
– Health, education & culture

About 70% of the stimulus will be implemented and administered by local or provincial governments, the rest being allocated to the central government. Detailed plans and schedules are currently being devised and made public in the near future.

Conclusion

Overall, these global stimulus packages impact companies along the value chains of many industries. The challenge will be to quickly identify the impact, the favorable circumstances and the requirements in order to act on the opportunities that arise.

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