Global economic outlook appears brighter as risks recede
Though 2016 brought much that was unexpected to the global economic and political landscape, many of the risks that were looming over the near-term outlook have receded.
After years of economic crises and recessions, the global economy in 2017 seems finally to be firing on all cylinders. It took a long time to get to this point, but this year—for the first time since 2007—all 35 countries in the Organization for Economic Co-operation and Development (OECD) are growing. What's more, nearly three-quarters of them are seeing their growth accelerate.
The BRICs (Brazil, Russia, India, and China) are looking sturdier than in the past: Brazil exited a two-year recession in the first quarter, and Russia, which had seen its gross domestic product (GDP) decline in year-on-year terms for seven consecutive quarters, pushed GDP up past its year-ago level in the fourth quarter of 2016. (See Figure 1.) Meanwhile, China, which has been on a decelerating path, is seeing a modest growth spurt in 2017, with growth likely to outpace that of the previous year for the first time in seven years. The long-troubled European Union is on solid economic footing, with an unemployment rate in June at the lowest level since February 2009. With all of these positive forces in play, the global economic growth rate this year is likely to be the fastest it has been since 2011.
Policy risks recede
Economic stability is never the only story, however, and for parts of 2016, it was looking like political developments were poised to spill over into the economic punch bowl. In June of 2016, voters in the United Kingdom shocked the world when a majority unexpectedly voted in favor of leaving the European Union (a decision popularly known as Brexit). This was followed by the U.S. election of Donald Trump in November 2016. Both moments represented the victory of protectionist, anti-immigration, anti-globalist movements, leading some to wonder whether more countries would soon follow—and whether the EU's very existence was under threat. Such outcomes normally dampen growth; notwithstanding their effect on the economies of particular countries, protectionist trade regimes and other trade barriers are commonly understood to inhibit global economic activity.
But in the wave of elections that followed, nationalism seemed to lose momentum. That December, in Austria, Alexander Van der Bellen, a pro-European liberal, was elected president in a convincing victory over the right-wing candidate Norbert Hofer. In March 2017, the Dutch parliamentary election, viewed as a referendum on the far-right populism championed by firebrand Geert Wilders, resulted in the continued majority of center-right Prime Minister Mark Rutte's party. In May, French centrist Emmanuel Macron, at the head of a party (En Marche) founded only one year before, defeated right-wing nationalist Marine Le Pen in a presidential run-off election, and En Marche followed this up in June parliamentary elections by securing a substantial majority of seats. A June snap election called by U.K. Prime Minister Theresa May, far from strengthening her Conservative Party's position, resulted in the loss of its majority, an outcome that could lead to a "softer" Brexit. In the same election, the U.K. Independence Party—whose major issue was championing the U.K.'s withdrawal from the EU—won zero seats. And in September, Angela Merkel won four more years as Germany's chancellor, although the insurgent right-wing AfD party showed new strength. Financial markets generally responded better to victories of pro-trade candidates; for example, when Macron was elected, the euro strengthened, while news of Brexit hit the value of the pound sterling hard.
Of course, the story of political risks to economic growth will never truly end. In Spain, a referendum on Catalonian independence was held in September, but its legitimacy was disputed by the Spanish government and international observers. The result was overwhelmingly pro-independence but was complicated by the nonparticipation of many voters who opposed independence. The ongoing disputes related to Catalonian independence—and the possibility that it would actually occur—are a significant risk to Spain's economic recovery. Looking forward, Italy's next general parliamentary election is slated to happen by May 2018. The degree of success of the anti-establishment, euroskeptic "five-star" movement will be seen as a measure of the public's appetite for a referendum on EU membership, a vote the movement has pledged to hold. And even as Brazil emerges from economic recession, it has landed back in political instability thanks to a corruption scandal. The saga, which has been ongoing for years, played a role in the country's recession and resulted in the impeachment and ouster of former President Dilma Rousseff. Her successor, Michel Temer, has been implicated in criminal charges. As the drama continues to play out, Brazil's recovery remains on shaky ground.
Engines of global growth
A look at the other BRICS, India and China, shows that China's GDP per capita of US$8,137 in 2015 stands in stark contrast to India's tally of US$1,629, despite the two countries' similar populations. (India is projected to surpass China in population in 2022.)
India and China have the two largest populations in the world. That, combined with brisk growth rates averaging 7.2 percent and 9.0 percent, respectively, over the last 10 years, has made them collectively responsible for more than 40 percent of the world's GDP growth over the past decade. Although each faces its own manner of challenges, their economic development has been key in reducing the global poverty rate (proportion of people who live on US$1.90 or less per day) from 35 percent in 1990 to below 11 percent today.
But in China, economic fundamentals are weak, and the country's economic structure includes major imbalances. In particular, consumer demand is suppressed thanks to a high propensity to save; China's financial system is relatively undeveloped and does not make it easy for private enterprises to borrow, resulting in a volatile "shadow" lending system; and Chinese policymakers are still trying to gradually unwind a real estate bubble without causing a "hard landing." China's growth has slowed for each of the last six years, in spite of repeated stimulus measures by the government, and we expect this trend to generally continue for the foreseeable future. But slowing growth in China's case is a symptom of "convergence," an economic concept that refers to countries that are behind in development growing at a faster pace than developed economies. Thanks to its earlier rapid growth, China is beginning the natural process of settling into the more sedate growth pace of a developed economy.
India, meanwhile, suffers from major underdevelopment of infrastructure. Reform efforts have produced disruption; in particular, the November 2016 demonetization, in which Prime Minister Narendra Modi's government suddenly recalled two major denominations of the rupee in a bid to impede tax evasion and counterfeiting, shocked consumer spending amid cash shortages. But this year has seen some promising signs on the reform front. Following more than a decade of negotiation, a unified goods and services tax came into effect in July 2017, replacing a slate of other taxes. The new rule eliminates instances of double taxation and slashes logistical and bureaucratic costs of compliance. If successful, the tax has the potential to improve India's competitiveness and accelerate development. And even though the demonetization measure produced disruption and lowered consumer spending in the short term, a subsequent landslide victory in 2017 for the ruling Bharatiya Janata Party (BJP) in Uttar Pradesh—India's biggest state—puts fresh wind in the sails of BJP's reform agenda.
While risks to the global economic growth outlook still exist, threats that seemed major just one year ago—including trade wars, instability in the EU, and a sharp Chinese economic contraction—now rate as outside possibilities. Barring war or panic, the stage is set for a good few years of broad-based international economic growth.
The practice consists of 5,000 professionals from Accenture and from Avanade—the consulting firm’s joint venture with Microsoft. They will be supported by Microsoft product specialists who will work closely with the Accenture Center for Advanced AI. Together, that group will collaborate on AI and Copilot agent templates, extensions, plugins, and connectors to help organizations leverage their data and gen AI to reduce costs, improve efficiencies and drive growth, they said on Thursday.
Accenture and Avanade say they have already developed some AI tools for these applications. For example, a supplier discovery and risk agent can deliver real-time market insights, agile supply chain responses, and better vendor selection, which could result in up to 15% cost savings. And a procure-to-pay agent could improve efficiency by up to 40% and enhance vendor relations and satisfaction by addressing urgent payment requirements and avoiding disruptions of key services
Likewise, they have also built solutions for clients using Microsoft 365 Copilot technology. For example, they have created Copilots for a variety of industries and functions including finance, manufacturing, supply chain, retail, and consumer goods and healthcare.
Another part of the new practice will be educating clients how to use the technology, using an “Azure Generative AI Engineer Nanodegree program” to teach users how to design, build, and operationalize AI-driven applications on Azure, Microsoft’s cloud computing platform. The online classes will teach learners how to use AI models to solve real-world problems through automation, data insights, and generative AI solutions, the firms said.
“We are pleased to deepen our collaboration with Accenture to help our mutual customers develop AI-first business processes responsibly and securely, while helping them drive market differentiation,” Judson Althoff, executive vice president and chief commercial officer at Microsoft, said in a release. “By bringing together Copilots and human ambition, paired with the autonomous capabilities of an agent, we can accelerate AI transformation for organizations across industries and help them realize successful business outcomes through pragmatic innovation.”
Census data showed that overall retail sales in October were up 0.4% seasonally adjusted month over month and up 2.8% unadjusted year over year. That compared with increases of 0.8% month over month and 2% year over year in September.
October’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were unchanged seasonally adjusted month over month but up 5.4% unadjusted year over year.
Core sales were up 3.5% year over year for the first 10 months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023. NRF is forecasting that 2024 holiday sales during November and December will also increase between 2.5% and 3.5% over the same time last year.
“October’s pickup in retail sales shows a healthy pace of spending as many consumers got an early start on holiday shopping,” NRF Chief Economist Jack Kleinhenz said in a release. “October sales were a good early step forward into the holiday shopping season, which is now fully underway. Falling energy prices have likely provided extra dollars for household spending on retail merchandise.”
Despite that positive trend, market watchers cautioned that retailers still need to offer competitive value propositions and customer experience in order to succeed in the holiday season. “The American consumer has been more resilient than anyone could have expected. But that isn’t a free pass for retailers to under invest in their stores,” Nikki Baird, VP of strategy & product at Aptos, a solutions provider of unified retail technology based out of Alpharetta, Georgia, said in a statement. “They need to make investments in labor, customer experience tech, and digital transformation. It has been too easy to kick the can down the road until you suddenly realize there’s no road left.”
A similar message came from Chip West, a retail and consumer behavior expert at the marketing, packaging, print and supply chain solutions provider RRD. “October’s increase proved to be slightly better than projections and was likely boosted by lower fuel prices. As inflation slowed for a number of months, prices in several categories have stabilized, with some even showing declines, offering further relief to consumers,” West said. “The data also looks to be a positive sign as we kick off the holiday shopping season. Promotions and discounts will play a prominent role in holiday shopping behavior as they are key influencers in consumer’s purchasing decisions.”
That result came from the company’s “GEP Global Supply Chain Volatility Index,” an indicator tracking demand conditions, shortages, transportation costs, inventories, and backlogs based on a monthly survey of 27,000 businesses. The October index number was -0.39, which was up only slightly from its level of -0.43 in September.
Researchers found a steep rise in slack across North American supply chains due to declining factory activity in the U.S. In fact, purchasing managers at U.S. manufacturers made their strongest cutbacks to buying volumes in nearly a year and a half, indicating that factories in the world's largest economy are preparing for lower production volumes, GEP said.
Elsewhere, suppliers feeding Asia also reported spare capacity in October, albeit to a lesser degree than seen in Western markets. Europe's industrial plight remained a key feature of the data in October, as vendor capacity was significantly underutilized, reflecting a continuation of subdued demand in key manufacturing hubs across the continent.
"We're in a buyers' market. October is the fourth straight month that suppliers worldwide reported spare capacity, with notable contractions in factory demand across North America and Europe, underscoring the challenging outlook for Western manufacturers," Todd Bremer, vice president, GEP, said in a release. "President-elect Trump inherits U.S. manufacturers with plenty of spare capacity while in contrast, China's modest rebound and strong expansion in India demonstrate greater resilience in Asia."
Even as the e-commerce sector overall continues expanding toward a forecasted 41% of all retail sales by 2027, many small to medium e-commerce companies are struggling to find the investment funding they need to increase sales, according to a sector survey from online capital platform Stenn.
Global geopolitical instability and increasing inflation are causing e-commerce firms to face a liquidity crisis, which means companies may not be able to access the funds they need to grow, Stenn’s survey of 500 senior e-commerce leaders found. The research was conducted by Opinion Matters between August 29 and September 5.
Survey findings include:
61.8% of leaders who sought growth capital did so to invest in advanced technologies, such as AI and machine learning, to improve their businesses.
When asked which resources they wished they had more access to, 63.8% of respondents pointed to growth capital.
Women indicated a stronger need for business operations training (51.2%) and financial planning resources (48.8%) compared to men (30.8% and 15.4%).
40% of business owners are seeking external financial advice and mentorship at least once a week to help with business decisions.
Almost half (49.6%) of respondents are proactively forecasting their business activity 6-18 months ahead.
“As e-commerce continues to grow rapidly, driven by increasing online consumer demand and technological innovation, it’s important to remember that capital constraints and access to growth financing remain persistent hurdles for many e-commerce business leaders especially at small and medium-sized businesses,” Noel Hillman, Chief Commercial Officer at Stenn, said in a release. “In this competitive landscape, ensuring liquidity and optimizing supply chain processes are critical to sustaining growth and scaling operations.”
With six keynote and more than 100 educational sessions, CSCMP EDGE 2024 offered a wealth of content. Here are highlights from just some of the presentations.
A great American story
Author and entrepreneur Fawn Weaver closed out the first day of the conference by telling the little-known story of Nathan “Nearest” Green, who was born into slavery, freed after the Civil War, and went on to become the first master distiller for the Jack Daniel’s Whiskey brand. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
She told the story in her best-selling book, Love & Whiskey: The Remarkable True Story of Jack Daniel, His Master Distiller Nearest Green, and the Improbable Rise of Uncle Nearest. That story also inspired her to create Uncle Nearest Premium Whiskey.
Weaver discussed the barriers she encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, pointing to a recent project in which the company was able to fast-track a new Uncle Nearest product thanks to close collaboration with its supply chain partners.
A two-pronged business transformation
We may be living in a world full of technology, but strategy and focus remain the top priorities when it comes to managing a business and its supply chains. So says Roberto Isaias, executive vice president and chief supply chain officer for toy manufacturing and entertainment company Mattel.
Isaias emphasized the point during his keynote on day two of EDGE 2024. He described how Mattel transformed itself amid surging demand for Barbie-branded items following the success of the Barbie movie.
That transformation, according to Isaias, came on two fronts: commercially and logistically. Today, Mattel is steadily moving beyond the toy aisle with two films and 13 TV series in production as well as 14 films and 35 shows in development. And as for those supply chain gains? The company has saved millions, increased productivity, and improved profit margins—even amid cost increases and inflation.
A framework for chasing excellence
Most of the time when CEOs present at an industry conference, they like to talk about their companies’ success stories. Not J.B. Hunt’s Shelley Simpson. Speaking at EDGE, the trucking company’s president and CEO led with a story about a time that the company lost a major customer.
According to Simpson, the company had a customer of their dedicated contract business in 2001 that was consistently making late shipments with no lead time. “We were working like crazy to try to satisfy them, and lost their business,” Simpson said.
When the team at J.B. Hunt later met with the customer’s chief supply chain officer and related all they had been doing, the customer responded, “You never shared everything you were doing for us.”
Out of that experience, came J.B. Hunt’s Customer Value Delivery framework. The framework consists of five steps: 1) understand customer needs, 2) deliver expectations, 3) measure results, 4) communicate performance, and 5) anticipate new value.
Next year’s CSCMP EDGE conference on October 5–8 in National Harbor, Md., promises to have a similarly deep lineup of keynote presentations. Register early at www.cscmpedge.org.