What happens to the economy as the pandemic fades? It all depends on the ease of restrictions and the phase-out of keys economic supports, says IHS Markit.
The constantly developing path of the COVID-19 pandemic continues to confound economic forecasters as they try to predict what effect the pandemic will have on the economy.
Predicting the progress of the vaccination effort has been challenging enough. Optimism from the early emergency approval of the Pfizer and Moderna vaccines gave way to the challenges of manufacturing vaccines. Likewise progress on vaccine distribution has given way to concerns about new, more contagious variants.
It seems likely that the disease and the vaccine rollout will continue to drive the economy in the near term. As a result, the economic recovery will be shaped by the different containment measures and fiscal and monetary policies put in place by countries across the globe, as well as the extent of pent-up consumer demand and savings. As the impact of the pandemic ebbs and restrictions ease, economic activity will gradually return to something resembling normal.
At IHS Markit, we have analyzed different scenarios of how containment measures might be eased and the factors that would drive that loosening. This analysis has led to some sobering conclusions about the global economic outlook. Currently, we expect most economic restrictions to be fully eased by the third quarter of 2021. We looked at two scenarios, one where these restrictions are lifted early due to accelerating progress in vaccine distribution, the other where these restrictions are extended as the pandemic persists. (See Figure 1.)
Our current baseline outlook for the vaccine campaign assumes that vaccines will be widely available and distributed by the end of Q2 in advanced economies. Access to vaccines will, however, remain limited in emerging market. The peak of cases will continue to fall through February but remain high relative to prior peaks. Distribution and manufacturing bottlenecks will be inevitable, but increasingly give way.
Major distribution or manufacturing issues may derail this view, but the risks to this view arise more from whether treatments continue to improve, whether broad one-dose vaccination is as effective as two, and vaccine hesitancy.
Scenario 1: early success
Our first scenario is based on the assumption that the vaccination effort will experience early successes. If efforts are successful, we expect that the rapid fall in infection rate that started in mid-January will accelerate through March and the number of cases will fall to levels well below prior peaks. If new vaccines are approved, we expect they will rapidly be put into manufacturing, and distribution will accelerate in advanced economies. If this all happens, by the end of Q2, the transmission rates and vaccine success will lead most major economies to fully reopen. As the success becomes more and more apparent, pent-up demand, fueled by accumulated savings, will drive an increase in consumer spending. Fading fiscal supports will prove to be enough to drive a surge of consumer spending.
This optimistic scenario would shift the rate of global gross domestic product (GDP) growth forward, rising from the 4.3% projected in our baseline to 5.9%. Overall global economic activity will pass the 2019 Q4 peak in the second quarter of 2021 (compared to the fourth quarter in the baseline), but the acceleration will vary widely across different regions. Europe and North America will see the fastest acceleration, with annual growth rising by 2 and 3 percentage points, respectively, in 2021. In the Asia-Pacific regions, where lockdown measures have been less severe, the upside to growth will be more muted in 2021.
The success of early vaccine distribution would mean that advanced economies would see greater growth in 2021 relative to the baseline, but that growth would slow in 2022 relative to the baseline. As vaccine distribution expands in emerging markets and advanced economy demand solidifies, economic growth in 2022 would accelerate in Latin American, Middle Eastern, and Asia-Pacific markets.
Ironically, the rapid recovery of China’s production following the initial wave of the pandemic suggests that it may not benefit as much from these gains. Further, there are indications that shifts in supply chains towards China during the pandemic may be reversing, as gains in Southeast Asia revive. Equity markets will revive, driven by the gains in consumption spending and business confidence. The revival of equity markets will lead to further acceleration of investment in advanced economies, although the gains here will be concentrated in the service sector rather than in the goods sector.
Scenario 2: delayed success
In contrast, a more protracted vaccine campaign would introduce new economic complexities. If, under this scenario, the pandemic continues to improve, but issues arise with new vaccine approvals, manufacturing, and distribution, it would hamper the success of the vaccination campaigns. More contagious variants would multiply along with continued localized outbreaks, leading authorities to prolong the restrictions on businesses.
If, however, the path of the pandemic does not change significantly and issues with distribution and manufacturing continue to hamper vaccination campaigns, then we could expect to see renewed peaks in the pandemic. Uncertainties around mutations and vaccine effectiveness would lead to further caution by authorities about loosening restrictions. The recovery would be delayed. Lack of economic progress would be sufficient to undermine demand for fiscal supports; and as those supports elapse, a wave of bankruptcies would emerge in major economies.
The delayed impact of vaccination efforts, combined with continued confinement measures, would shave nearly 4% off global growth in 2021. Full acceleration of the economy would be postponed nearly two years until 2023. Overall global activity would pass the 2019 Q4 peak only in the second quarter of 2023. North America and Europe would slip back into a recession, although a much less severe one than in 2020 Q2. Asia and Latin America would see growth slowdowns as global demand retracts. China’s growth would fall by over 3 percentage points in 2021, and the slowdown would persist with global demand. Elsewhere, the Eurozone and the United Kingdom would see growth slow between 3 and 5 points, with the impact of increasing bankruptcies pushing the growth acceleration until 2023.
Despite the slowdown in mainland China, it would still outperform other economies. This fundamental out-performance would continue to attract equity and other capital flows, along with a strengthening exchange rate. In contrast, the Eurozone and Japan would see a steady increase in the risk premiums placed on their domestic debt as concerns about rising public and private debt levels take on new urgency with the wave of bankruptcies. The U.S. would benefit from the dollar and its economy being seen as a “safe haven” in times of global economic turmoil. This would restrain the rise in interest rates in the United States, but the fall in global demand would translate into falling demand for imports.
Lessons learned
A few insights can be drawn from this analysis. First, the distinctive path of China over the course of the pandemic means that the potential upside in growth is limited there, and the downside will be driven by demand elsewhere. Stronger demand elsewhere would also accelerate some of the supply chain shifts towards Mexico and Southeast Asia.
Second, the upside scenario is driven largely by pent-up demand in sectors where restrictions have been the most profound: in restaurants, retail, travel, and entertainment.
Third, the downside risk is much greater than the upside. Globally, policy supports have critically restrained the rise of bankruptcies and the follow-on impacts on credit and investment. The timing of the phase-out of these supports will critically affect the transition to the post-pandemic economy.
Supply Chain Xchange Executive Editor Susan Lacefield moderates a panel discussion with Supply Chain Xchange's Outstanding Women in Supply Chain Award Winners (from left to right) Annette Danek-Akey, Sherry Harriman, Leslie O'Regan, and Ammie McAsey.
Supply Chain Xchange recognized four women who have made significant contributions to the supply chain management profession today with its second annual Outstanding Women in Supply Chain Award. The award winners include Annette Danek-Akey, Chief Supply Chain Officer at Barnes & Noble; Sherry Harriman, Senior Vice President of Logistics and Supply Chain for Academy Sports + Outdoors; Leslie O’Regan, Director of Product Management for DC Systems & 3PLs at American Eagle Outfitters; and Ammie McAsey, Senior Vice President of Customer Distribution Experience for McKesson’s U.S. Pharmaceutical division.
Throughout their careers, these four supply chain executive have demonstrated strategic thinking, innovative problem solving, and effective leadership as well as a commitment to giving back to the profession.
The awards were presented at the Council of Supply Chain Management Professionals (CSCMP) annual EDGE Conference in Nashville, Tenn. In addition to the awards presentation, the leaders discussed their leadership philosophies and career path during a panel discussion at the EDGE conference.
The surge of “nearshoring” supply chains from China to Mexico offers obvious benefits in cost, geography, and shipping time, as long as U.S. companies are realistic about smoothing out the challenges of the burgeoning trend, according to a panel today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Those challenges span a list including: developing infrastructure, weak security, manual processes, and shifting regulations, speakers said in a session titled “Nearshoring: Transforming Surface Transportation in the U.S.”
For example, a recent Mexican government rail expansion added lines to tourist destinations in Cancun instead of freight capacity in the Southwest, said panelist Edward Habe, Vice President of Mexico Sales, for Averitt. Truckload cargo inspections may rely on a single person looking at paper filings on the border, instead of a 24/7 online system, said Bob McCloskey, Director for Logistics and Distribution at Clarios, LLC. And business partners inside Mexico often have undisclosed tier-two, tier-three, and tier-four relationships that are difficult to track from the U.S., said Beth Kussatz, Manager of Northern American Network Design & Implementation, Deere & Co.
Still, dedicated companies can work with Mexican authorities, regulators, and providers to overcome those bottlenecks with clever solutions, the panelists agreed. “Don’t be afraid,” Habe said. “It just makes sense in today’s world, the local regionalization of manufacturing. It’s in our interest that this works.”
A quick reaction in the first 24 hours is critical for keeping your business running after a cyberattack, according to Estes Express Lines, the less than truckload (LTL) carrier whose computer systems were struck by hackers in October, 2023.
Immediately after discovering the breach, the company cut off their internet, called in a third-party information technology (IT) support team, and then used their only remaining tools—employees’ personal email and phone contacts—to start reaching out to their shipper clients. The message on Day One: even though the company was reduced to running the business with paper and pencil instead of computers, they were still picking up loads on time with trucks.
“Customers never want to hear bad news, but they really don’t want to hear bad news from someone other than you,” the company’s president and COO, Webb Estes, said in a session today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
After five or six painful days, Estes transitioned from paper back to computers. But they continued sending clients daily video updates from their president, and putting their chief information officer on conference calls to answer specific questions.
Although lawyers had advised them not to be so open, the strategy worked. It took 19 days to get all computer systems running again, but at the end of the first month they had returned to 85% of their original client list, and now have 99% back, Estes said in the session called “Hackers are Always Probing: Cybersecurity Recovery and Prevention Lessons Learned.”
As the final hours tick away before a potential longshoreman’s strike begins at midnight on the U.S. East and Gulf coasts, experts say the ripples of that move could roll across the entire U.S. supply chains for weeks.
While some of the nation’s largest retailers were able to pull their imports forward in recent weeks to soften the blow, “the average supply chain is ill-prepared for this,” Tom Nightingale, the former CEO of AFS Logistics, said in a panel discussion today at the Council of Supply Chain Management Professionals (CSCMP)’s EDGE Conference in Nashville.
Despite that grim prognosis, a strike seems virtually unavoidable, CSCMP President & CEO Mark Baxa said from the stage. At latest report, the White House had declined to force the feuding parties back into arbitration through its executive power, and a voluntary last-minute session had failed to unite the International Longshoremen’s Association (ILA)’s 45,000 union members with the United States Maritime Alliance that manages the 36 ports covered under their expiring contract.
The ultimate impact of a resulting strike will depend largely on how long it lasts, the panelists said. With a massive flow of 140,000 twenty foot equivalent units (TEUs) of shipping containers moving through the two coasts each week, each day of a strike will require 7 to 10 days of recovery for most types of goods, Nightingale said.
Shippers are desperately seeking coping mechanisms, but at this point the damage will add up fast, whether a strike lasts for an optimistic “option A” of just 48 to 72 hours, a pessimistic “Option B” of 7 to 10 days, or even longer, agreed Jon Monroe, president of Jon Monroe Consulting.
The first full day of CSCMP’s EDGE 2024 conference ended with the telling of a great American story.
Author and entrepreneur Fawn Weaver explained how she stumbled across the little-known story of Nathan Green and, in deciding to tell that story, launched the fastest-growing and most award-winning whiskey brand of the past five years—and how she also became the first African American woman to lead a major spirits company.
Weaver is CEO of Uncle Nearest Premium Whiskey, a company she founded in 2016 and that is part of her larger private investment business, Grant Sidney, Inc. Weaver told the story of "Nearest" Green—as Nathan Green was known in his hometown of Lynchburg, Tenn.—to Agile Business Media & Events Chairman Mitch MacDonald, in a keynote interview Monday afternoon.
As it turns out, Green—who was born into slavery and freed after the Civil War—was the first master distiller for the Jack Daniel’s Whiskey brand. His story was well-known among the local descendants of both Daniel and Green, but a mystery in the larger world of bourbon and a missing piece of American history and culture. Through extensive research and interviews with descendants of the Daniel and Green families, Weaver discovered what she describes as a positive American story.
“I believed it was a story of love, honor, and respect,” she told MacDonald during the interview. “I believed it was a great American story.”
Weaver 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, and has channeled it into an even larger story with the founding of the brand. Today, Uncle Nearest Premium Whiskey is made at a 323-acre distillery in Shelbyville, Tenn.—the first distillery in U.S. history to commemorate an African American and the only major distillery in the world owned and operated by a Black person.
Weaver and MacDonald's wide-ranging discussion covered the barriers Weaver encountered in bringing the brand to life, her vision for where it’s headed, and her take on the supply chain—which she said she views as both a necessary cost of doing business and an opportunity.
“[It’s] an opportunity if you can move quickly,” she said, emphasizing a recent project to fast-track a new Uncle Nearest product in which collaborating with the company’s supply chain partners was vital.
Uncle Nearest Premium Whiskey has earned more than 600 awards, including “World’s Best” by Whisky Magazine two years in a row, the “Double Gold” by San Francisco World Spirits Competition, and Wine Enthusiast’s “Spirit Brand of the Year.”
CSCMP’s EDGE 2024 runs through Wednesday, October 2, at the Gaylord Opryland Hotel & Convention Center in Nashville.