HONOLULU (Reuters) - Europe’s debt crisis and political gridlock in Washington are heightening business uncertainty among global corporations, but so far CEOs say strong global demand is offsetting any damage.
Washington’s problems pose a longer-term threat. Business leaders fear that lawmakers are losing the ability to perform basic functions, making Congress unable to tackle policy needed to ensure the United States remains competitive.
For now, companies from Caterpillar Inc to Eli Lilly and Co attending a CEO summit at the Asia Pacific Economic Cooperation forum, said they are managing any loss of sales caused by turmoil in southern Europe.
“We are seeing very minor impact,” Doug Oberhelman, the chief executive of Caterpillar told reporters on the sidelines of the APEC CEO summit here in Honolulu.
APEC finance ministers on Thursday agreed that they need to shore up their defenses against fallout from a euro-zone debt crisis that threatens to pose a drag on growth for many months ahead.
Oberhelman said the debate about Italy and Greece, which are struggling to stay solvent, has raised the degree of uncertainty in the world. But in terms of Caterpillar’s outlook, strong demand elsewhere has offset any losses.
“Other parts of Europe and Eastern Europe and Africa are doing fairly well and will more than compensate for southern Europe in our industry,” he said.
The world’s largest heavy machinery manufacturer recently reported a surprising 44 percent increase in its quarterly results, driven by strong demand for mining equipment and construction machinery.
Resource and construction industries are expanding rapidly to meet robust demand from China and other fast-growing emerging economies.
Likewise, Nissan Motor Co’s corporate vice president told reporters there had been no impact on the Japanese automaker’s business.
Eli Lilly, which has drug manufacturing and sales offices in Italy as well as dozens of other facilities around the world, is more on the front lines of the European crisis.
In southern Europe, the 10th largest pharmaceutical company essentially depends on payments from governments since health care is largely funded by those countries’ authorities.
“We are feeling the aftershocks of this crisis ... with pressure on pricing and in some cases delays in payments. But we are managing through that,” Lilly’s Chief Executive John Lechleiter told Reuters. “The impact so far has not been material.”
After pulling through the 2007-09 financial crisis and recession, Caterpillar’s CEO said he expected the company to manage its business “no matter what.”
“I am hopeful that the European authorities will find a way through that, but if they don’t we are prepared,” Oberhelman said.
FedEx Express’ chief operating officer would not say whether the fallout had spilled into the shipping company’s operations, but Michael Ducker told Reuters: ”We are doing what we have to do to manage this.
“We have great flexibility in our business.”
In the United States, companies are growing frustrated with Congress where Democrats and Republicans are deeply divided over how to reduce the $15 trillion U.S. public debt.
“As businesses we are very concerned about it. Problems have to be solved. The political debate has gotten so caustic it has gotten in the way of that,” Tom Craren, managing partner at PricewaterhouseCoopers, told Reuters.
Lawmakers meeting in a special committee are trying to strike a longer-term deal to reduce the deficit. They have two weeks left to come up with a proposal. Many Republicans oppose raising taxes, while Democrats oppose deep cuts in social programs. The conflict follows a chaotic August budget fight, which nearly saw a government shutdown and a debt default.
Business leaders urged compromise.
“The U.S. fiscal problem has to get solved because long term it is not sustainable,” Craren said.
Microsoft Corp’s chief research and strategy officer, Craig Mundie, also voiced concerns over the gridlock in Congress.
“The deadlock that everybody observes in Congress, people outside the country, it makes them worried about whether the necessary policy things will get done,” Mundie told Reuters.
A protracted fight over how to raise the country’s borrowing limit and rein in spending caused Standard & Poor’s to downgrade the United States’ top credit rating in August.
Editing by Maureen Bavdek