We're halfway through 2016, and it's a good time to take stock of where things stand in the world's major economies. Moreover, with the first six months of the year now behind us, we have a better idea of where things might be headed in 2017. With that in mind, the following overview of economic trends will give you a sense of what to expect for the rest of this year and into the next.
It looks like 2016 will be another subpar year in terms of global economic growth. Since 2012, world real gross domestic product (GDP) growth has been stuck in the 2.5%-2.7% range. That's unlikely to change this year, but we expect to see some improvement next year. A significant amount of that rebound is likely to emanate from the industrial production sector. Global industrial production has slowed from a 2.7% growth rate in 2014 to a 1.2% reading in 2015 and is likely to grow only 1.2% in 2016. However, we expect it to bounce back at around 3.1% in 2017, and to be a tad over 3.0% for each year in the period 2017-2020. (See Figure 1.)
Article Figures
[Figure 1] Global growth outlook: Real GDP and industrial productionEnlarge this image
[Figure 2] Domestic consumption as a percentage of global GDPEnlarge this image
Global economic growth faces challenges due to a perfect storm of political risks. Uncertainty over the United Kingdom's referendum on European Union membership has hurt business growth and sentiment, mitigating consumer confidence and spending growth in that country. The suspension of Brazil's president, Dilma Rousseff, has exacerbated that country's economic woes, and a resurgence of populism in Austria and the Philippines has also raised concerns. In addition, the political climate in the United States could further deter already weakened U.S. business investment and corporate hiring.
The divergence in real GDP growth rates among the world's key economies is widening. Several, such as Brazil, Russia, and Venezuela, are in deep recessions. Others, including Argentina, Japan, and South Africa, are on the cusp of entering recession territory. A couple of the eurozone countries are growing at subpar rates and are vulnerable to economic or financial setbacks. Growth is relatively more solid but somewhat unexciting in Canada, Germany, Sweden, the United Kingdom, and the United States. However, a few economies, such as India, Indonesia, the Philippines, and Vietnam, are performing rather well. As for China, its structural problems and ongoing transition to light manufacturing and a service-oriented economy make it difficult to classify its current economic and financial performance.
Approximately 25 percent of the world's GDP is under a negative interest rate regime. Negative interest rates have been applied by the Bank of Japan, European Central Bank (the central bank of the eurozone countries), Danish National Bank, Swedish National Bank, and Swiss National Bank. Negative interest rates are rather experimental and are a clear indication that traditional monetary-policy options have not been successful.
These central banks are trying this approach in order to promote growth. Negative interest rates influence growth by punishing banks that have high levels of cash holdings instead of providing loans. Since central banks provide a benchmark for most borrowing costs, negative rates can also have a profound impact on fixed-income securities; by the end of April 2016 approximately US$8 trillion of government bonds globally offered negative yields. The U.S. Federal Reserve did raise rates in December 2015 but is unlikely to do so again until late this year. Meanwhile, the Bank of England is unlikely to raise rates until next year and is eagerly awaiting the results of the United Kingdom's vote on European Union membership in late June.
European growth is slow, steady, and bifurcated, with no shortage of political risks. Although the foundations of Europe's economic growth remain fairly firm due to low commodity and low energy prices, competitive currencies, and monetary stimulus, the region faces multiple political risks. These include the ongoing refugee crisis, terrorist attacks, the U.K.'s referendum on EU membership, and the on-again, off-again flare-ups over Greek debt. The growth prospects seem to be rather bifurcated, with countries in Europe's northern zone growing at a steady pace, and those in the southern zone coming out of a deep ditch, showing some promise (Spain), or exposed to financial and economic shocks.
Japan's jagged real-GDP growth pattern is likely to persist well into next year. Japanese exposure to China's transitioning economy is rather elevated in comparison to that of the United States, and even small shocks can push economic growth into negative territory. There are several structural issues hindering Japan's long-term growth, such as a shrinking population and an aging workforce.
China's economic growth will slow further in 2016. The economy's digestion of industrial-sector excess capacity, a glut of housing inventory, and a debt bubble will place additional pressure on China's domestic demand. Moreover, weak and unstable global demand means the country won't be able to export its way to recovery as it did in the past.
As China's economy continues to weaken and its export sector continues to struggle, global financial markets have become increasingly jittery about China's currency. Owing to a strong U.S. dollar, China's stable exchange rate vis-Ã -vis the dollar is hurting the competitiveness of Chinese exports. With the general economy slowing, the renminbi is thus increasingly under pressure to depreciate. However, devaluing the renminbi significantly could cause financial-market panic, trigger massive capital flight, and crunch domestic liquidity. Given Chinese policymakers' risk aversion and preference for stability, the most probable policy choice will be to implement moderate, but less predictable, devaluation and stricter capital controls, while helping exporters regain some cost competitiveness through tax policy.
Other emerging markets are likely to improve as commodity prices gradually increase and financial pressures ease. As fears about China's currency have lessened (at least temporarily), and as oil and commodity prices have risen in the past few months, the intense downward pressures on many emerging markets' currencies and equity markets have lessened. Some countries are in a better position to gain from these trends than others. In particular, the economic fundamentals for India and Indonesia remain strong with respect to trade and debt levels. While Russia will benefit from higher oil revenue and currency stabilization, Western financial sanctions are likely to continue to impede capital inflows. Countries with large current-account deficits, high amounts of debt, or both—such as South Africa, Turkey, Malaysia, and Colombia—remain vulnerable to financial instability.
The United States is one of the bright spots among the post-industrial economies. However, it is currently a two-tiered economy in terms of growth: service sectors are doing well, but manufacturing is struggling. Business investment in energy and exports are hurting due to a stronger dollar, relatively low oil prices, and weak global growth. The consumer sector and housing market are doing most of the heavy lifting.
The U.S. consumer continues to play a significant role in the global economy. U.S. consumption as a percentage of global GDP peaked at approximately 21.4% in 2002, and then declined to 14.7% in 2011. However, in 2015, U.S. consumption as a percentage of world GDP jumped to 16.7% and is likely to reach 17.4% for all of 2016. Consumer spending in Western Europe reached almost 18% of world GDP in 2004 and has since fallen to approximately 12.0% for 2016. BRIC (Brazil, Russia, India, and China) consumer spending was a major source of global growth from 2000 through 2014 but then dropped to the 9-10% range. It is likely to remain there for the next several years. (See Figure 2.)
Although it's hard to summarize such a complex situation in just a few words, the general takeaway is this: Rising political risks and slow growth are hampering economies in 2016, but the prospects for 2017 are significantly brighter.
Jason Kra kicked off his presentation at the Council of Supply Chain Management Professionals (CSCMP) EDGE Conference on Tuesday morning with a question: “How do we use data in assessing what countries we should be investing in for future supply chain decisions?” As president of Li & Fung where he oversees the supply chain solutions company’s wholesale and distribution business in the U.S., Kra understands that many companies are looking for ways to assess risk in their supply chains and diversify their operations beyond China. To properly assess risk, however, you need quality data and a decision model, he said.
In January 2024, in addition to his full-time job, Kra joined American University’s Kogod School of Business as an adjunct professor of the school’s master’s program where he decided to find some answers to his above question about data.
For his research, he created the following situation: “How can data be used to assess the attractiveness of scalable apparel-producing countries for planning based on stability and predictability, and what factors should be considered in the decision-making process to de-risk country diversification decisions?”
Since diversification and resilience have been hot topics in the supply chain space since the U.S.’s 2017 trade war with China, Kra sought to find a way to apply a scientific method to assess supply chain risk. He specifically wanted to answer the following questions:
1.Which methodology is most appropriate to investigate when selecting a country to produce apparel in based on weighted criteria?
2.What criteria should be used to evaluate a production country’s suitability for scalable manufacturing as a future investment?
3.What are the weights (relative importance) of each criterion?
4.How can this methodology be utilized to assess the suitability of production countries for scalable apparel manufacturing and to create a country ranking?
5.Will the criteria and methodology apply to other industries?
After creating a list of criteria and weight rankings based on importance, Kra reached out to 70 senior managers with 20+ years of experience and C-suite executives to get their feedback. What he found was a big difference in criteria/weight rankings between the C-suite and senior managers.
“That huge gap is a good area for future research,” said Kra. “If you don’t have alignment between your C-suite and your senior managers who are doing a lot of the execution, you’re never going to achieve the goals you set as a company.”
With the research results, Kra created a decision model for country selection that can be applied to any industry and customized based on a company’s unique needs. That model includes discussing the data findings, creating a list of diversification countries, and finally, looking at future trends to factor in (like exponential technology, speed, types of supply chains and geopolitics, and sustainability).
After showcasing his research data to the EDGE audience, Kra ended his presentation by sharing some key takeaways from his research:
China diversification strategies alone are not enough. The world will continue to be volatile and disruptive. Country and region diversification is the only protection.
Managers need to balance trade-offs between what is optimal and what is acceptable regarding supply chain decisions. Decision-makers need to find the best country at the lowest price, with the most dependability.
There is a disconnect or misalignment between C-suite executives and senior managers who execute the strategy. So further education and alignment is critical.
Data-driven decision-making for your company/industry: This can be done for any industry—the data is customizable, and there are many “free” sources you can access to put together regional and country data. Utilizing data helps eliminate path dependency (for example, relying on a lean or just-in-time inventory) and keeps executives and managers aligned.
“Look at the business you envision in the future,” said Kra, “and make that your model for today.”
Turning around a failing warehouse operation demands a similar methodology to how emergency room doctors triage troubled patients at the hospital, a speaker said today in a session at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
There are many reasons that a warehouse might start to miss its targets, such as a sudden volume increase or a new IT system implementation gone wrong, said Adri McCaskill, general manager for iPlan’s Warehouse Management business unit. But whatever the cause, the basic rescue strategy is the same: “Just like medicine, you do triage,” she said. “The most life-threatening problem we try to solve first. And only then, once we’ve stopped the bleeding, we can move on.”
In McCaskill’s comparison, just as a doctor might have to break some ribs through energetic CPR to get a patient’s heart beating again, a failing warehouse might need to recover by “breaking some ribs” in a business sense, such as making management changes or stock write-downs.
Once the business has made some stopgap solutions to “stop the bleeding,” it can proceed to a disciplined recovery, she said. And to reach their final goal, managers can use the classic tools of people, process, and technology to improve what she called the three most important key performance indicators (KPIs): on time in full (OTIF), inventory accuracy, and staff turnover.
CSCMP EDGE attendees gathered Tuesday afternoon for an update and outlook on the truckload (TL) market, which is on the upswing following the longest down cycle in recorded history. Kevin Adamik of RXO (formerly Coyote Logistics), offered an overview of truckload market cycles, highlighting major trends from the recent freight recession and providing an update on where the TL cycle is now.
EDGE 2024, sponsored by the Council of Supply Chain Management Professionals (CSCMP), is taking place this week in Nashville.
Citing data from the Coyote Curve index (which measures year-over-year changes in spot market rates) and other sources, Adamik outlined the dynamics of the TL market. He explained that the last cycle—which lasted from about 2019 to 2024—was longer than the typical three to four-year market cycle, marked by volatile conditions spurred by the Covid-19 pandemic. That cycle is behind us now, he said, adding that the market has reached equilibrium and is headed toward an inflationary environment.
Adamik also told attendees that he expects the new TL cycle to be marked by far less volatility, with a return to more typical conditions. And he offered a slate of supply and demand trends to note as the industry moves into the new cycle.
Supply trends include:
Carrier operating authorities are declining;
Employment in the trucking industry is declining;
Private fleets have expanded, but the expansion has stopped;
Truckload orders are falling.
Demand trends include:
Consumer spending is stable, but is still more service-centric and less goods-intensive;
After a steep decline, imports are on the rise;
Freight volumes have been sluggish but are showing signs of life.
CSCMP EDGE runs through Wednesday, October 2, at Nashville’s Gaylord Opryland Hotel & Resort.
The relationship between shippers and third-party logistics services providers (3PLs) is at the core of successful supply chain management—so getting that relationship right is vital. A panel of industry experts from both sides of the aisle weighed in on what it takes to create strong 3PL/shipper partnerships on day two of the CSCMP EDGE conference, being held this week in Nashville.
Trust, empathy, and transparency ranked high on the list of key elements required for success in all aspects of the partnership, but there are some specifics for each step of the journey. The panel recommended a handful of actions that should take place early on, including:
Establish relationships.
For 3PLs, understand and get to the heart of the shipper’s data.
Also for 3PLs: Understand the shipper’s reason for outsourcing to a 3PL, along with the shipper’s ultimate goals.
Understand company cultures and be sure they align.
Nurture long-term relationships with good communication.
For shippers, be transparent so that the 3PL fully understands your business.
And there are also some “non-negotiables” when it comes to managing the relationship:
3PLs must demonstrate their commitment to engaging with the shipper’s personnel.
3PLs must also demonstrate their commitment to process discipline, continuous improvement, and innovation.
Shippers should ensure that they understand the 3PL’s demonstrated implementation capabilities—ask to visit established clients.
Trust—which takes longer to establish than both sides may expect.
EDGE 2024 is sponsored by the Council of Supply Chain Management Professionals (CSCMP) and runs through Wednesday, October 2, at the Gaylord Opryland Resort & Convention Center in Nashville.
While the Council of Supply Chain Management Professionals' 2024 EDGE Conference & Exhibition is coming to a close on Wednesday, October 2, in Nashville, Tennessee, mark your calendars for next year's premier supply chain event.
The 2025 conference will take place in National Harbor, Maryland. To register for next year's event—and take advantage of an early-bird discount of $600**—visit https://www.cscmpedge.org/website/62261/edge-2025/.
**EDGE EARLY BIRD Terms & Conditions: Promotion is for the EDGE 2025 conference in National Harbor, Maryland. Offer valid for Premier and Basic Members only. Offer excludes Student, Young Professional, Educator, and Corporate registration types. Offer limited to one per customer. Offer is not retroactive and may not be combined with other offers. Offer is nontransferable and may not be resold. Valid through October 31, 2024.