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Global Business • The Economy • Energy

Global Business: Anti-Americanism on the march?
The Economy: Interest rates will stay as-is
Energy: Gas prices lower than last summer

Global Business
While the war and related churning in the Middle East continue ... U.S. exports to the Arab world will hit a new high this year. Exporters will sell $45 billion worth of products to Egypt, Saudi Arabia, the United Arab Emirates, and nearby nations, up nearly 30% from 2006.
The United Arab Emirates is the top market for U.S. goods and services in the Middle East, having passed Israel last year. The UAE is pushing hard to transform itself into a transshipment hub: It already ranks third behind Singapore and Hong Kong as a re-exporter of goods not just to Arab neighbors but to East Africa and China, too.
Egypt is also strong, benefiting from an ongoing shift from a centrally planned economy to a market-oriented one. Coca-Cola, GM, and ExxonMobil all had their best year ever there in 2006 and now plan to expand operations in Egypt. Other big U.S. firms also thrive there.
Among the leading exports: Oil field and defense equipment. Civilian aircraft and parts. Trucks and buses. Food and beverages. Plus banking, hospitality, construction, and engineering services.

But with anti-Americanism on the march in many places abroad ...
U.S. firms face the threat of losing export sales to Asian rivals and other competitors that don’t bear the stigma of the Ugly American. Polls of people in countries as disparate as the United Kingdom, Germany, South Africa, South Korea, Indonesia, and Australia uniformly rate America’s influence in the world as mostly negative. Many of those polled say they’re less likely to buy U.S. goods as a result. Nigeria is one of the rare nations where perception of the U.S. is improving.
Look for U.S. firms to do more to repair America’s bad image. In one effort, foreign alumni of the Fulbright program are being tapped to serve as goodwill emissaries for the U.S. in their home countries. Also, more executives will be trained in how to deal with other cultures.

Bush is poised to allow countervailing duty cases against China, despite the difficulty of determining to what extent Beijing is involved in subsidizing Chinese exports. The Commerce Department will rule next month that U.S. firms can file such cases. China will appeal, but fail.
First up: An Ohio company’s petition involving high-gloss paper used in magazines and catalogs. NewPage Corp. is likely to win its case, paving the way for other U.S. businesses to file similar actions.

Until Russia does more to protect intellectual property rights, its bid to join the World Trade Organization will remain on hold. Odds are any progress on this front will be delayed until well into 2008.
After China, Russia is the largest source of pirated goods in the world and is a transshipment point between China and Europe.
Counterfeit Rx drugs and liquor pose genuine health threats. Moreover, losses to the U.S. movie, music, software, and other industries attributable to Russian piracy totaled nearly $2.2 billion last year.

The Economy
Federal Reserve policymakers have no plans to get off the fence. The chief arbiters of interest rate policy are making it clear that they won’t risk inflation when the economy starts to accelerate. But they also won’t snuff out this currently modest economic expansion.
We see interest rates staying as-is through the rest of the year, with a slight chance of a rate hike if inflation holds stubbornly high.

Expect an average 4% gain in first-quarter profits for firms in the S&P 500 ... the first single-digit quarterly hike in five years.
For the year ... a 7% advance, roughly half the 2006 growth rate. The culprits? This year’s slower pace of new orders and the burden of steadily rising wage and benefit costs, which pinch profit margins.
Health care and technology will stand out, with profits soaring in double digits ... 14% and 15%, respectively. Consumer staples, up 10%.
Energy and basic materials will see profit growth slow the most, in stark contrast to both sectors’ recent string of banner years. Stable energy prices will curb last year’s double-digit profit increase.
Financial companies won’t all be hurt by the mortgage meltdown. Certain firms heavily exposed to subprimes are clearly in trouble. But overall, the sector will see profits grow by 5% this year.

Congress wants to bring more shipbuilding back to U.S. shores.
Lawmakers will triple loan guarantees to about $120 million by 2010 so small and midsize shipbuilders can finance the construction, repair, or reconditioning of commercial ships sailing under the U.S. flag.

The goal: More jobs and homegrown capacity so companies rely less on overseas shipyards. The U.S. commercial fleet has decreased steadily since the end of World War II, and shipbuilding moved overseas long ago. Today, U.S.-built ships move only 4% of the world’s waterborne trade. The loan guarantees will spur more U.S. work. But with labor and supplies much cheaper in South Korea, China, and Japan, added ship work in the U.S. won’t change market share much. Among firms that will benefit: Atlantic Marine in Ala., Gladding-Hearn Shipbuilding in Mass., National Maintenance and Repair in Ill., and Diversified Marine in Ore.

Energy
Summer gasoline prices will be better behaved than a year ago. Refineries are humming along at near full capacity, oil prices remain moderate, and the geopolitical climate is calmer than last year. Look for the national average price of gasoline to peak at about $2.80. Diesel, however, will top $3 in July because of clean air requirements.