There are pessimists, and there are pessimists. And there's no mistaking where Stephen S. Roach, Morgan Stanley Dean Witter's chief economist, falls. "If it looks like a recession, if it feels like a recession," he says, "why not call it a recession?" If Roach is right, this year will test the mettle of companies as earnings growth slows and the gross domestic product contracts in the first half of the year. So what's a CEO to do? The key, Roach says, will be striking a balance between cost-cutting and investing in larger markets. Companies also must capitalize on the world's aging population, globalization, and technology. "Managers who do not realize those key strategic issues are putting their franchises at risk," he says. This doesn't mean plowing more money into information technology indiscriminately--that got companies into trouble in the first place. The answer, Roach says, is focusing investments on mission-critical businesses. Example: an investment bank buying technology to improve its higher-margin mergers-and-acquisitions practice rather than its lower-margin back-office trade processing. An economic upturn is inevitable. The winners will be those who spend wisely.
By Emily Thornton in New York
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