Royal Philips Electronics NV And The Global GDP Slowdown

Royal Philips Electronics NV is one of the largest companies in the world. Its growth, or lack thereof, is therefore a reasonable proxy of the growth at a number of major industries in the last 60 days. And Philips earnings were not very encouraging, not even for those who expect a halting recovery in the worldwide economy.

Philips said its business was slow across most of its medical equipment, consumer products and electronics divisions. Its solution will be to cut 500 million euros in costs. That will certainly mean layoffs. And that will recreate the cycle that was part of the recent recession. Revenue troubles at companies cause layoffs. Those who have lost their jobs are no longer consumers. And the overall effect is that GDP growth slows even more.

Philips, GE (NYSE: GE), Samsung and Siemens have many similar businesses. Each of these companies is considered a reasonable proxy for both consumer and business demand. Sluggish sales at all four, which Wall St. will watch for as last quarter’s earnings come out, will mean that the recovery has lost most of its steam.

The surprise about the earnings of these large companies will be if they do not slow. The consumer demand in the EU, with the exception of economic jugernaut Germany, has been crippled by the same weak jobs markets and austerity plans that have caused sovereign debt market trouble. U.S. GDP growth is probably below 2% now if unemployment, consumer confidence and housing are any indication. Japan’s growth could be damaged for a decade by the earthquake there. Even China’s growth slipped last quarter compared to the previous five periods.

Philips’s home market is the Netherlands, which is too small a market to affect the multinational’s growth rate. Nearly all of Philips’s revenue is spread across the developed and developing nations that make up a huge share of global GDP. Philips’s tough quarter is another sign that worldwide economic has faltered. The results may even point to a second dip in the world’s economic expansion.

Douglas A. McIntyre