SCOTTSDALE, AZ, Oct. 15 -- A pair of economists who track the electronics industry this week offered differing opinions on what's in store for the recovering sector.

The outlook for capital spending is "generally favorable" due to higher demand for replacement equipment and a need for greater efficiencies, said Dr. Larry Chimerine. Companies are sitting on extraordinary cash reserves and financing is available from outside sources, said Chimerine, who spent 14 years as manager of U.S. economic research and forecasting at IBM.

Speaking Tuesday at the TMRC meeting in Scottsdale, Chimerine said that although the environment remains nearly impenetrable to product price hikes, companies will need to invest in new equipment in order to compete. "If you can't raise prices, you must improve productivity 3 to 4% every year just to stay even" with higher energy costs, vendor price hikes and raises to employee wages, Chimerine said.

A somewhat different outlook was given by Ed Henderson of Henderson Ventures. Henderson, a longtime PCB industry analyst, forecast a slowdown in annual global GDP through 2006, and a corresponding drop in equipment sales.

Annual GDP growth worldwide will slow from 4% this year to 3.5% in 2005 and 3.1% in 2006, Henderson predicted. Likewise, global sales of electronics equipment will drop from 13.4% this year to 9.1% in 2005 and 5.7% in 2006. The figures are based on actual exchange rates.

The bare PCB market, now in its second year of recovery, will also fall, Henderson said. After 7.4% and 13.8% growth in 2003 and 2004, respectively, global PCB sales will slip to 6.4% next year as prelude to a 2006 recession, when sales will be 0.8% lower than in 2005, he said.

While pointing out that oil use as a percent of U.S. GDP has declined steadily over the past 20 years, Henderson said peaking oil prices could precipitate a sharp downturn. "Although a global recession is not in the forecast, a sustained oil price in the $60 to $70 range could produce an economic downturn in 2005."

Trade Barriers

Chimerine singled out trade deficits as a major longterm hurdle for the U.S. economy. Noting trade barriers enacted by several Pacific Rim nations, most notably China, that effectively squeeze American-made products from Asian markets, Chimerine asserted that trade has become an economic growth issue.

"The outsourcing of production [is] the real drag" on the economy, he said. "The manufacturing base must be strong. Not all chips [ICs, potato] are the same."

U.S. trade deficits with China and overall have this year ballooned to all-time highs, with some forecasts predicting a $550 billion gap by year-end.

Pointing to the Bush Administration's current policy of not waging battles over suspected currency manipulation by China, Japan and Taiwan, Chimerine said, "We are insane in keeping this in place," he said.