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Digital Economy Major Threat

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The digital economy – based on adopting new technologies to new business models and delivering products and services in a convenient, enjoyable manner — presents a huge opportunity for companies of all types and sizes.

However, cybercrime poses challenges that can threaten business operations and stifle innovation and growth.  As companies grow increasingly dependent upon complex, internet-enabled business models, they also become increasingly vulnerable to cyberattacks and a potentially devastating loss of trust.

We estimated that over the next five years, global public companies risk losing an estimated US$5.2 trillion in value creation opportunities from the digital economy—almost the size of the economies of France, Italy and Spain combined—to cybersecurity attacks.

The financial services industry provides a clear example of this dependence on internet-enabled business models and the underlying risks. Over 90 percent of banking and insurance executives say a trustworthy digital economy is critical to their organization’s future growth. But only 25 percent of banks and 30 percent of insurers are very confident in the security of the internet currently, with confidence levels expected to decline further over the next five years in both industries. These findings come from a report based on a survey of more than 1,700 CEOs and other senior executives around the globe.

Business leaders are highly aware of the risks posed by cybercriminals and of organizations’ need to increase security and resiliency.  For example, four in five (79 percent) respondents said the advancement of the digital economy will be severely hindered unless there is dramatic improvement to internet security, and more than half (59 percent) said the internet is becoming increasingly unstable from a cybersecurity standpoint, and that they are unsure how to react.

Three-quarters (75 percent) believe that addressing cybersecurity challenges will require an organized group effort, as no single organization can solve the challenge on its own. With heightened concerns about internet security, more than half (56 percent) of executives would also welcome stricter business regulations imposed by a central organization or governing body.

As part of the report, we identified three actions that CEOs and other C-suite leaders in financial services can take to help improve the safety of the internet:

  1. Governance: Join Forces with Other Companies and Govern Globally – When leaders realize that prioritizing a trustworthy digital economy is a win-win situation, businesses, consumers and governments can all benefit. Chief executives should explore ways to band together in each industry to consider both conduct and principle-based standards for Internet security.
  2. Business Architecture: Connect and Protect with a Model Run on Digital Trust – When security is a foundational requirement through the company’s value chain—from suppliers to customers — business partners will not be a major vulnerability. CEOs and their leadership teams, including technology, should articulate a vision of “security-by-design” from the earliest stages of development.
  3. Technology: Advance Businesses and Enhance Safety – With leadership committed to building digital trust, the tech community should commit to strengthening not just security on devices, but also for networks and broader ecosystem for the organization.

For banks, insurers and other financial services firms, collaboration is essential, but these firms also need to ensure that cybersecurity remains a top priority for CEOs and boards of directors.  Senior management and boards, in turn, should hold business managers accountable for security and data privacy.  While no one organization can defeat cybercrime on its own, CEOs and boards everywhere can push for changes needed to secure the flows of data that underpin the digital economy.

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Economy

Trump says US Economy is Strong

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BERKELEY HEIGHTS, N.J. – President Donald Trump dismissed concerns of recession on Sunday and offered an optimistic outlook for the economy after last week’s steep drop in the financial markets.

“I don’t think we’re having a recession,” Trump told reporters as he returned to Washington from his New Jersey golf club. “We’re doing tremendously well. Our consumers are rich. I gave a tremendous tax cut and they’re loaded up with money.”

A strong economy is key to Trump’s re-election prospects. Consumer confidence has dropped 6.4% since July. The president has spent most of the week at his golf club in New Jersey with much of his tweeting focused on talking up the economy.

Aides sought to reinforce that message during a series of appearances on the Sunday talk shows.

Larry Kudlow, Trump’s top economic adviser, dismissed fears of a looming recession and predicted the economy will perform well in the second half of 2019. He said that consumers are seeing higher wages and are able to spend and save more.

“We’re doing pretty darn well in my judgment. Let’s not be afraid of optimism,” Kudlow said.

Kudlow acknowledged a slowing energy sector, but said low interest rates will help housing, construction and auto sales.

Kudlow also defended the president’s use of tariffs on goods coming from China. Before he joined the administration, Kudlow was known for opposing tariffs and promoting free trade during his career as an economic analyst. Kudlow said Trump has taught him and others that the “China story has to be changed and reformed.”

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“We cannot let China pursue these unfair and unreciprocal trading practices,” Kudlow said.

Democratic presidential candidate Beto O’Rourke said the U.S. needed to work with allies to hold China accountable on trade. He said he fears Trump is driving the global economy into a recession.

economy is strong

“This current trade war that the president has entered our country into is not working,” O’Rourke said. “It is hammering the hell out of farmers across this country.”

Last month, the Federal Reserve reduced its benchmark rate — which affects many loans for households and businesses — by a quarter-point to a range of 2% to 2.25%. It’s the first rate cut since December 2008 during the depths of the Great Recession. Federal Reserve Chairman Jerome Powell stressed that the Fed was worried about the consequences of Trump’s trade war and sluggish economies overseas.

“Weak global growth and trade tensions are having an effect on the U.S. economy,” he said.

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Breaking with historical norms, Trump has been highly critical of Powell as he places blame for any economic weakness on the nation’s central bank for raising interest rates too much over the past two years.

“I think I could be helped out by the Fed, but the Fed doesn’t like helping me too much,” Trump complained Sunday.

Peter Navarro, who advises Trump on trade policy, shared that sentiment.

“The Federal Reserve chairman should look in the mirror and say, ‘I raised rates too far, too fast, and I cost this economy a full percentage point of growth,’” Navarro said.

Trump acknowledged at least a potential impact on consumers when he paused a planned 10 per cent tariff hike for many items coming from China, such as cellphones, laptops, video game consoles, some toys, computer monitors, shoes and clothing.

“We’re doing (it) just for Christmas season, just in case some of the tariffs could have an impact,” the president told reporters in New Jersey.

Navarro would not go even that far, saying Sunday “there’s no evidence whatsoever that Americans consumers are bearing any of this.”

Kudlow was interviewed on NBC’s “Meet the Press” and “Fox News Sunday.” O’Rourke spoke on NBC, and Navarro appeared on CNN’s “State of the Union” and CBS’ “Face the Nation.”

Trump’s trade war with China has been a target of criticism by Democrats vying to challenge him in 2020.

“There is clearly no strategy for dealing with the trade war in a way that will actually lead to results for American farmers or American consumers,” said Mayor Pete Buttigieg of South Bend, Indiana, a Democratic presidential candidate. He said on CNN that it was “a fool’s errand” to think tariff increases will compel China to change its economic approach.

Trump maintained that China’s economy is struggling because of the tariffs and would like to make a trade deal with the U.S. He said he could make a “bad deal” and the stock markets would go up, “but it wouldn’t be the right thing to do.”

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Economy

B.C. economy will be drag on by Housing market

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A slowdown in residential construction investment will be a drag on the B.C. economy over the next year or two, but this will be offset by a boom in non-residential building, according to a forecast released August 16 by Central 1 Credit Union.

Housing starts in the province are currently high, supported by presales in the active markets of the past few years. But this will slow down along with current new home sales, wrote Central 1’s deputy chief economist Bryan Yu.

Yu wrote, “Starts are forecast to dry up. New housing is a lagging indicator of the market and a downshift is anticipated with the cooling of demand. Timing is uncertain particularly given the longer lead time for large, complex multi-family projects. A pull back in momentum in the second half of this year contributes to a four per cent annual decline in starts in 2019, with a decline of 15 per cent in 2020. Residential investment will be an increasing drag on the economy [although] rental construction may pick up some of the slack.”

He said that he expects residential investment spending to decline three per cent in 2020 “after eking out a small increase in 2019” and then it will stay flat through 2021.

However, Yu expressed confidence that non-residential construction growth, especially in major projects, will offset some of these losses to the B.C. economy.

“Rising non-residential construction is … indicative of firm growth. Building permits rose more than 60 per cent through May, with strong gains across private and public sector intentions. Government investments in schools and hospitals have lifted activity, alongside major private sector initiatives including new office space in Vancouver. Adding to this is ongoing engineering work on major projects such as the Site C dam in the Peace region and the liquefied natural gas activity in the northwest.”

Looking further ahead, Yu wrote that major capital projects will be key drivers of B.C. economic activity.

He wrote, “Major capital projects will be key drivers of growth over the coming years. Build out of the LNG Canada liquefied natural gas facility in Kitimat and associated pipelines through to 2023, coupled with ongoing construction of the Site C dam and twinning of the Trans Mountain pipeline will highlight the rising investment cycle. Public works projects including the Patullo Bridge replacement, extension of the subway line in the Vancouver Broadway corridor will also lift construction. These projects [will] drive strong gains in non-residential investment, particularly in engineering and building construction through to 2021 before declining in 2022. As the liquefied natural gas project moves closer to completion, natural gas production and to a lesser extent, natural gas exports, will pick up in 2022 onwards.”

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Confidence in American Economy drops in August

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Consumers might be more hesitant to shop and spend if they grow more worried about the economy. A survey of consumer sentiment fell in August to the lowest level of the year.

American Economy: A measure of consumer confidence fell in August to the lowest level since the start of the year, reflecting fresh worries about trade tensions with China and the possibility of a looming recession.

The consumer sentiment survey fell to 92.1 this month from 98.4 in July, according to a preliminary reading from the University Michigan. Economists surveyed by MarketWatch had forecast a reading of 96.8.

Just a year and a half ago, the index touched 101.4 to mark the highest level since 2004.

What happened: A gauge that measures what consumers think about their own financial situation and the current health of the economy fell to 107.4 from 110.7, leaving it at a nearly two-year low.

Another measure that asks about expectations for the next six months declined to 82.3 from 90.5 — also a two-year bottom.

The Trump administration’s decision to apply tariffs to more Chinese imports and the Federal Reserve’s move to cut interest rates over worries about the economy made consumers more anxious, said Richard Curtin, chief economist of the survey.

Big picture: By many measures the U.S. economy still appears quite stable, but the worsening trade fight with China has hurt manufacturers and exporters, unnerved investors and put central bankers on edge. The Fed cut interest rates last month as an “insurance” policy against recession and it’s likely to do so again in September.

That hasn’t been enough to soothe investors, who dumped stocks this week and drove down the yield on U.S. Treasurys to stunningly low levels.

So far consumers haven’t cut back spending even as their worries grow. But waning confidence could cause them to do so in the months ahead, potentially weakening the economy. Consumer spending represents about 70% of U.S. economic activity.

What they are saying? “The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession,’ Curtin said.

Market reaction: The Dow Jones Industrial Average

DJIA, +1.12%

and S&P 500 index

SPX, +1.43%

rose in Friday trading. The 10-year Treasury yield

TMUBMUSD10Y, +2.09%

edged up to 1.55%.

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