Reflecting the global economy's woes.


Global Economy Loses Its (Ball) Bearings

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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Few components are as essential to the workings of industry as the humble ball bearing. So the bleak economic picture painted by today's earning report from the world's biggest bearings maker was worrisome enough. But combined with sales news indicating weak consumer demand for staples such as toiletries and food -- goods that economists call inelastic, meaning people tend to keep buying margarine and soap no matter what their economy is doing -- they suggest the global economy is far more fragile than most observers have acknowledged.

Sweden's SKF is a proper industrial company. Its metal spheres are used in everything from wind turbines to Ducati motorbikes to fridge compressors. So the ongoing slump in its organic sales growth, which tells you how its underlying business is doing excluding things such as acquisitions or the gyrations of the currency market, suggests things aren't going so well for its customers -- all the makers of things with moving parts out of steel and other hard materials:

Moreover, the company isn't sounding optimistic about its prospects. Looking ahead, demand for SKF's industrial and auto products "is expected to be relatively unchanged" compared with both the quarter just ended and with a year ago, it said in today's first-quarter earnings report. (SKF shares are down as much as 8 percent, making it the worst-performing stock in Europe.) On a worldwide basis, sales in the U.S. and Europe were the biggest drag on SKF:

Source: SKF

In the consumer sector, developed economies continue to play second fiddle to smaller markets in delivering growth. Nestle, the world's biggest food maker, today reported first-quarter sales that beat analyst expectations. Revenue growth for stuff such as Nestle coffee and Shredded Wheat in emerging markets was more than double the pace in the developed sector:

Source: Nestle

Unilever is having a similar, though more extreme, experience; it now makes almost 60 percent of its revenue in emerging markets, compared with 45 percent for Nestle. Here's how its business mix fared in the first quarter:

Source: Unilever

Moreover, among the 2 billion people around the world who Unilever says use its products every day are a bunch of Europeans who are paying less for their Dove toiletries, Persil laundry and Wall's ice cream. Figures today show consumer prices in the euro zone slipped by an annual 0.1 percent last month, extending February's 0.3 percent drop; that deflation is reflected in Unilever's report:

Source: Unilever

To be sure, Unilever reckons it had a good start to the year, and is a bit more upbeat about the outlook than it was in January, saying it sees "more tailwinds than headwinds" boosting sales growth this year. But taken together, this week's figures from SKF, Nestle and Unilever suggest the typical geographical engines of global growth aren't powering a reliable recovery.

The global economy remains vulnerable to any splutter in the U.S. recovery. It's also at the mercy a further deterioration in the eurozone's prospects, and beholden to emerging markets playing a bigger part in the worldwide resuscitation. The world still hasn't shaken off the hangover induced by the financial crisis -- a situation central banks everywhere need to be mindful of as they mull their next monetary policy moves. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Mark Gilbert at

To contact the editor on this story:
Cameron Abadi at