The Supply Chain Matters blog continues its series of unveiling 2019 Predictions for Industry and Global Supply Chains. In this Part One posting, we explore our first prediction as to what to anticipate from an overall economic and activity level perspective. 
On an annual basis, the Ferrari Consulting and Research Group provides a series of supply chain management focused predictions for the coming year. These predictions are provided to our clients and readers of this Supply Chain Matters blog in the spirit of advising line-of-business, multi-industry cross-functional supply chain management and supporting IT teams a sensing of meaningful initiatives, programs or capabilities we feel will be of importance.  The predictions further serve as our continued research and client advisory agenda in the coming year.
The context of these predictions includes a broad cross-functional umbrella of what today is supply chain management, and includes areas of supply chain leadership and strategy, product management, strategic sourcing and procurement, planning and execution, manufacturing, transportation and logistics, online fulfillment.
We initiated this series in our initial blog that summarized themes and insights included in all ten of our predictions.
Traditionally, our first prediction will highlight what industry and global supply chain management teams should expect from a global economic outlook perspective.
2019 Prediction One: An Optimistic But Cautious Economic Outlook for Global Growth in the Coming Year with Downside Risks
Reflecting on 2019, we predict that industry and global supply chains will encounter a lot more uncertainty relative to global trade, currency, geo-political and climate change risks. Below is supporting data.
Global and Regional Economic Outlooks
The consensus of 2019 economic viewpoints that we have reviewed call for an optimistic but cautious economic outlook for global growth for industry and global supply and demand networks to plan for in the coming year. That stated, there are discernable downside risks dependent on specific global regions and developments during the year.
The International Monetary Fund (IMF) World Economic Outlook published in October 2018 indicates that the steady expansion under way since mid-2016 will continue, but with global growth rates to essentially remain at 2017 levels. Global growth is forecasted to be 3.7 percent for both 2018 and 2019, a 0.2 percentage point decline from the April 2018 forecast. The agency noted that downside risks to global economies have risen in the prior six months with the potential for upside growth most likely receded.
While economic momentum in the United States remained somewhat strong at the end of 2018, the U.S. forecast for 2019 was revised slightly downward due to trade and tariff impacts. Growth projections for China, the Eurozone and the United Kingdom and a number of other Asian economies were reduced in aftermath of recently announced trade measures. The IMF warned that tighter financial controls in advanced economies could cause disruptive adjustments, sharp exchange rate movements and reductions in capital inflows to emerging markets that have greater vulnerabilities.
Most economists indicate that while economic recession is not imminent in the coming year, there remains a 20-25 percent probability that economic recession could occur, with recession risk more likely in the 2020 time period. A reinforcement of building concerns for economic setback came from a Duke University CFO Global Business Outlook Survey released in mid-December. The survey indicated that almost half of U.S. CFO’s believe recession will occur in the U.S. economy by the end of 2019. Upwards of 80 percent of U.S. CFO’s lean more toward recession occurring by the end of 2020. Similar year 2020 recession concerns extend to CFO’s from Canada, the Eurozone and Africa. Concerns centered on heightened stock market volatility and leading financial indicators, ongoing challenges in finding qualified employees and the rise in international trade disputes.
Concerning the U.S., a November 2018 survey conducted by the American Institute of Certified Public Accountants reflected some reduced optimism for U.S. economic growth in 2019. Whereas in the fourth quarter of 2017, 74 percent of finance executives had a positive outlook for the economy, the 2018 survey reflected only 57 percent of executives having such an outlook. Concerns over trade policies, a building U.S. budget deficit, higher interest rates and a fading euphoria over the U.S. corporate tax overhaul will all attributed to some decline in optimism.
The Organization for Economic Cooperation and Development (OECD) indicated within its November 2018 Economic Outlook that while global economic growth remained strong, the cycle is believed to have passed its peak and faces escalating risks including rising trade tensions and tightening of financial measures. OECD’s global GDP projection was reported as 3.5 percent for 2019.
A shakier outlook for 2019 reflects deteriorating prospects related to emerging markets. It is also attributed to growing trade tensions and weaker investment globally. Within its report, OECD indicates through graphical data that trade growth, reflected by manufacturing new export orders, has been sharply decelerating since the middle of 2018. Global ocean container port traffic data reflects a similar sharp deceleration in export activity. One section titled, Clouds Are Gathering On The Horizon, presents visualized graphs indicating that tariff hikes act a brake on GDP growth, and that a slowdown in China would weigh on growth across the world.
The U.S. is expected to raise prevailing interest rates again in 2019, but at a reduced level after four rounds of small incremental rate hikes in 2018.
Across the Eurozone, a noticeable decline in manufacturing and supply chain activity during 2018, with growing uncertainties related to a potentially messy Brexit, a continued aggressive stance on tariffs by the United States, and the fragile economies of Italy and Greece has many financial executives on edge. As we pen these predictions, the fate of the March 2019 Brexit plan remains very uncertain as to whether Britain will endorse the EU agreement plan.
Trade and tariff tensions among China and the United States remain uncertain and changing with each passing day, without any sense of closure. The re-constituted United States, Mexico and Canada Trade Agreement (USMCA) faces a period of legislative ratification in 2019 among the three nations with some agreement areas uncertain.
Similarly, tariff actions coupled with significantly higher fuel and transportation costs have forced U.S. businesses to raise prices on a range of manufactured and imported goods as well as services. U.S. manufacturers are paying upwards of 8 percent more for aluminum and upwards of 40 percent for steel. That is driving added concerns for broader price inflation in the economy.
The Institute for Supply Management (ISM) Semiannual Economic Forecast published in December 2018 reflects the views of purchasing and supply management executives for 2019. The panel-based report reflects optimism that U.S. manufacturing industry growth for the first-half of 2019 will surpass that of 2018, with business continuing to expand in the second-half. Overall, the panel expects a 5.7 percent net increase in overall manufacturing revenues compared to a 5.1 percent predicted increase for 2018. Surprisingly, U.S. manufacturers are predicting growth in both exports and imports in the coming year. Capital expenditures are expected to grow by an average of 6 percent compared to a reported average of 13.4 percent for 2018. Purchasing managers reported that their companies are currently operating at 85.2 percent of normal capacity, slightly lower than reported in May 2018.
Anticipated Global Supply Chain Activity Levels
Indices for global-wide manufacturing and supply chain activity for November 2018 further point to both subdued activity levels and initial shifting of sourcing locations. The closely watched J.P. Morgan Global Manufacturing PMI, a broad indicator of global manufacturing and supply chain activity, posted a value of 52 for November 2018, essentially unchanged from that of October, and reflected a 2.5 percentage drop from the beginning of 2018. The authors noted that October represented a 23-month low as growth remained below respective long-run averages. Among the developed regions, the United States had the most momentum while the Eurozone, Japan and Taiwan had trended considerably downward from Q1 levels. Indices reflecting activity in India and Vietnam were accelerating upward by November, fueled by growth in domestic and new export orders. China remained hovering near the contraction point of 50.
Summing Up
Current global economic and operational activity forecasting data reflects measured but cautious optimism regarding economic growth levels for 2019, depending on the perspective. Economists and bankers anticipate some slowing of the overall global economy coupled with optimism for certain regions. They cite a continuing period of volatility and potential for downside risks given the current geo-political and global trade climate. Purchasing and supply management executives seem to be more optimistic as to added growth in 2019.
Individual supply chain management organizations will have to dig deep into the data to ascertain individual industry forecasts and risks.
Our view remains cautious primarily because we sense the beginnings of structural global supply and demand network changes occurring across certain industry sectors in the coming year that will likely extend to future years.
This concludes Part One of our 2019 Predictions for Industry and Global Supply Chains. In a subsequent posting in this series, we highlight our second prediction that reflects on supply chain talent recruitment and retention trending.
Bob Ferrari
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