There exist two possible scenarios for the future of the global economy, said Caterpillar CEO Jim Owens on Friday.

Speaking in Johannesburg, at Barloworld, a Caterpillar dealer, the capital equipment company boss noted there was a 75% chance that the world economy would now enter a period of base-case growth, even though this might be "relatively anaemic".

Owens, who also serves on US president Barack Obama's Economic Recovery Advisory Board, said this scenario was built on the fact that the world still had high infrastructure needs, coupled with worldwide mass urbanisation, especially in the still-growing Asian economies.

He said the world was in a "commodity-intensive" phase of its development, which meant that the mining industry should see an upswing in this scenario.

He added that the capital equipment replacement cycle had been left incomplete during the last upturn, and that many mines were still operating with trucks older than ten years, which spelled the existence of pent-up demand for yellow metal (or capital equipment).

However, the other side of the coin was a 25% chance of what Owens termed a "great recession", where "things could fall apart".

He believed this could happen should central banks implement bail-out plan exit strategies "too quickly".

"The biggest risk is that central banks raise their interest rates before the recovery gains traction."

Owens stated that nationalism posed a significant threat to any visible green shoots, as protectionist economics would stifle trade and, subsequently, economic recovery.

In the great recession scenario, commodity prices would trend down, and there would be a further decline in home and commercial property prices.

Owens also issued a stern warning for the US and other developed countries in changing their mindset towards international economics.

"Global growth will be lead by the emerging market theatre, which should be thought of differently than in the past, particularly because of the rising middle class [in these countries]."

In reference to the US specifically, Owens said the North American country represented only 5% of the global population, "and we must start behaving like that. This is a big change, we must integrate into the world."

The US-based Caterpillar is the world's biggest mining and construction capital equipment producer. It has 300 manufacturing facilities worldwide, achieving sales of $51-billion in 2008, with 60% of this outside North America.

Owens, who has a doctorate in economics, and who had joined the group as a corporate economist in 1972, said Caterpillar had survived the Asian crisis in 2002, even though it had witnessed a 97% drop in sales in the once booming South East Asia, and a subsequent 25-year low in mining investment as the world grappled with the sharp economic downturn.

This crisis was followed by "the best three years in global gross domestic product growth since World War II", from 2004 to 2006.

The subsequent surge in demand for nearly every product imaginable, especially from the Indian and Chinese economies coming on-stream, lead to severe bottlenecks, and a global scramble to increase capacity.

"Demand for our product went up 40% in 2004," said Owens.

He said customers were facing a three-year waiting period on some Caterpillar equipment lines.

However, the credit crunch, which hit in late 2008 and accumulated into a full-blown recession in 2009, put a stop to this.

Where once the company forecasted sales of $57-billion for the current year, it now had to cope with full-year sales estimated at around $32-billion.

"Shipments of new Cat machines were down by about two-thirds in the second quarter of this year compared with the second quarter last year," said Owens.

Coping with the severe downturn meant laying off 37 000 people, and cutting the company's travel and entertainment budget by 87%. However, research and development spend was to remain at $2,5-billion a year, with the budget to build new capacity in emerging markets, especially Asia, remaining.

"This is our future," Owens said simply.

"We must be nimble," he added, describing how the company would survive. "We must be the best elephant at the dance."

Should the base case growth scenario prove true, Owens said Caterpillar could see sales of $55-billion to $60-billion by 2012 or 2013. However, in a great recession scenario, sales would remain at around $35-billion over a similar timeframe.

Owens also warned of a possible [component] supplier bottleneck fermenting should Caterpillar achieve even a rather modest 6% growth rate next year.

Having cut back production and inventory dramatically, the capital equipment manufacturer's suppliers would have to increase their shipments to Caterpillar by 70% to 80% should the US company achieve this growth curve.

"We are trying to help them understand what will happen on the way up. They would need working capital to come up as fast as they may need to.

"Some of our suppliers are really challenged, they are operating at 20% of their capacity."

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