Supply Chain Managers Must Deal With Tepid Global Growth

For the third year in a row, global growth has started out strong, only to falter by midyear, said IHS Global Insight Economists.

The incoming economic data “point to softness” in most parts of the world, IHS adds.

In Europe, all signs are flashing red. The IHS forecast now incorporates a Greek exit from the Eurozone in mid-2013, and projected growth rates for all regions of the world have been revised downward since last month. Global real GDP is now projected to increase 2.7 percent this year, 3.0 percent in 2013, and 3.8 percent in 2014. Most of the risks are on the downside. Until recently, rising oil prices were viewed as the biggest threat to the global expansion. Now, the re-escalating Eurozone crisis is a bigger danger, followed by the risk of a more pronounced deceleration in the Chinese economy.

In the United States, growth will likely be a little weaker this year and next than predicted earlier, but the U.S. expansion will continue at a roughly 2 percent pace. Although employment data in April and May were disappointing, other trends point to US resilience. Home sales and housing starts are picking up and prices are stabilizing, thanks in part to Federal Reserve policies to keep mortgage rates near record lows. Importantly, the recent drop in oil and gasoline prices is boosting household purchasing power. Ultimately, consumer spending is far more important than exports. U.S. exports to the Eurozone and China are, respectively, only about 2 percent and 1 percent of GDP.

IHS Global Insight Economist Sara Johnson told SCMR in an interview that supply chain managers will be facing slow but measured growth.

“Retailers and manufacturers will continue to keep lean inventories,” she said. “And credit is still hard to obtain.”

In Europe, however, there is no respite from bad news. Recent data reveal deteriorating business confidence, rising unemployment, and declining domestic and export orders. Cyprus, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, and the United Kingdom are already in recession. Several North European countries, including Germany, have avoided recession but have seen growth slow sharply. With expectations of a Greek exit and continued market turbulence, Eurozone real GDP is now projected to decrease 0.4 percent in 2012 and 0.1 percent in 2013. Spain’s banking crisis is worsening rapidly and the EUR100-billion in emergency loans to recapitalize banks is probably insufficient to stem the crisis.

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