Growth prospects for the global economy remain strong for 2006 and beyond as consumer spending, which has led growth recently, gives way to aggressive business investments .. Capital expenditures (CapEx) worldwide rose 9.4% in 2005 and are expected to climb to 10.0% in 2006. Global industrial output, in nominal terms, grew 8.2% in 2005, with real growth only 3.6% and the rest accounted for by price inflation. Output, in nominal terms, is forecast to grow at a modestly higher 8.7% in 2006. Overall profits rose 9.4% in 2005, marginally outpacing output. A further acceleration to 10.9% is forecast for 2006. Growing profits encourage capital investments and, consequently, boosts industrial production and economic growth.

Empirical evidence suggests very close correlation among the growth of output, sector profits, and CapEx, three principal indicators of industrial performance. Such close correlations have been observed even at aggregate levels across industrial sectors and regions. On the other hand, substantial variability exists in profit margins (ratio of profit to output) and income sensitivity of CapEx (ratio of CapEx to output) among different industrial sectors and among geographic regions. The combined information from the correlations among these performance indicators and the inherent variability between sectors and regions serves as ideal guides to identify which sectors and which regions have the most promising growth prospects in the near-term.

The following summary of Top-10 growth sectors are identified by growth prospects in output, profits, and CapEx. The assessment is based on World Industry Service’s sector forecasts released on 14 July 2006.

Global Growth Prospects for Output, Profits and CapEx among Industry Sectors
Source: Global Insight's World Industry Services, July 2006
		Based on Performance in 2005							Estimated Growth in 2006
		Growth in Output	Growth in Profits	Growth in CapEx	Share in GDP	Ratio: Profits/Output	Ratio: CapEx/Output		Output	Profits	CapEx
		-- Nominal US$ Basis --
World
	All sectors	8.2%	9.5%	9.4%	100.0%	21.0%	11.3%		8.7%	10.9%	10.0%
	Goods Sector	10.2%	13.7%	12.9%	34.9%	16.3%	7.5%		10.5%	14.5%	12.2%
	Services Sector	6.5%	7.6%	7.6%	56.3%	23.8%	13.6%		7.1%	8.7%	8.7%
	Top-10 Growth Sectors
	Energy Mining	38.1%	39.3%	22.3%	2.2%	42.8%	16.9%		35.6%	42.5%	21.3%
	Chemicals, inc. Petrol. Products	20.0%	25.9%	14.8%	6.3%	15.0%	6.0%		15.0%	13.0%	14.6%
	Utilities	12.7%	10.1%	14.8%	2.4%	33.0%	24.7%		12.4%	13.6%	13.2%
	Construction	10.4%	11.9%	14.1%	6.3%	17.0%	6.3%		12.1%	17.1%	14.8%
	Transport & Storage	8.7%	10.3%	10.2%	4.2%	20.1%	15.3%		8.7%	12.1%	11.6%
	Healthcare Services	7.9%	8.0%	8.2%	4.5%	13.0%	7.0%		8.3%	12.4%	13.3%
	Financial Institutions	7.6%	6.8%	8.1%	3.7%	34.1%	12.7%		10.3%	13.3%	13.2%
	Wholesale Trade	7.0%	8.8%	6.4%	4.9%	20.5%	8.5%		7.4%	10.1%	9.3%
	Business services	5.8%	7.6%	7.1%	7.4%	24.0%	11.3%		7.8%	11.7%	9.0%
	Educational Services	5.1%	14.7%	13.1%	3.1%	7.0%	6.6%		9.7%	13.9%	14.4%

• The energy sector tops the list in terms of all three indicators, namely output, profits, and CapEx growth. Chemical industries, utilities, construction, and financial services follow to make the top-five on the list. Strongest growth occurs in China, Brazil, Russia, and India. While China and Brazil show aggressive growth in almost all sectors, the growth in India and Russia are dominated by select sectors, namely trade, transportation, and related infrastructure.
• Energy mining is the most promising sector with output in nominal terms forecast to grow 35.6% in 2006, mostly resulting from 33% rise in sector price index. Operating surplus will remain at close to 40%, while CapEx expands another 20%. Profit margin at 42% (ratio of profits/output) is the highest for any sector. The fastest growth in the sector occurs in Brazil, China, Middle East, Russia, and the United States. Real growth is fastest in China, while the sector shrinks in real terms in the United States and Russia.
• Robust growth of over 10% is forecast for output, profits and CapEx in chemical industries, utilities, construction, and financial services. Profit margins in these sectors range from a low of 15% in chemical industries to a high of 34% in financial services. Brazil, South Korea, India, and China are the primary growth areas for chemicals, utilities, and construction, while China, Canada and the United States are forecast to show the strongest growth in financial services.
• Growth in transportation and storage is most aggressive in Russia, India, Canada, and China. While profit margin is close to 20% in all of these countries, CapEx in China and Russia far exceed current year operating surplus, an indication of investments in infrastructure in view of expanding trade prospects in these regions.
• Healthcare service output witnessed strong growth in 2005 in developing countries such as Brazil, Eastern Europe, and China, averaging above 10%. Profit margins also amount to about 10%. However, CapEx in Brazil in particular is an abysmal 1.9% of output.
• Wholesale trade grows aggressively at close to 15% in India, China, and Canada. The sector operates at 55% profit margin in India, while China and Canada operate at below 15%. However, CapEx in India is only 2.5% of output whereas it exceeded current year operating surplus in China, again reflecting the rapid growth in trade influenced by the on-going commercialization, industrialization, and globalization.

Raul Dary

24 Hartwell Ave.
Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

www.globalinsight.com and www.wmrc.com