This week and during the remainder of December, The Ferrari Consulting and Research Group and its affiliate, the Supply Chain Matters blog, is providing a series of blogs focusing on what occurred among global supply chains in 2021, and our consequent predictions for 2022.
We do so to assist our clients, businesses and readers better prepare for the coming year.
We begin this series today by highlighting what two global economic agencies are forecasting for global and regional economic growth along with inflation conditions in 2022 and beyond.
OECD December Global Economic Forecast
Last week, the Organization for Economic Cooperation and Development (OECD) issued its latest December forecast. The agency warned that while the global economy continues to recover there remains much uncertainty heading into 2022.
The agency latest economic forecast calls for global GDP growth of 5.6 percent this year, followed by 4.5 percent growth in 2022, and moderating to 3.2 percent in 2023.
The latest report indicates that while most advanced economies are projected to return to their pre-pandemic output levels by 2023, they will do so with higher debt loads and inflation rates than pre-pandemic levels.
In the latter inflation category, among OECD economies, annual consumer price inflation is expected to peak this year but remain above pre-pandemic levels for the next three years. Inflation rates are projected to be close to 5 percent by the end of this year, and then moderate to 3.5 percent by the end of 2022, and 3 percent by the end of 2023. Both the United States and Europe currently have significantly high inflation rates with the U.S. rate expected to be near 5.6 percent at year-end. What also caught our attention was inflation rates being projected higher for certain developing countries. Inflation rates in India, Brazil and Mexico forecasted to hover in the 3 percent to 5 percent range during 2022 and 2023.
These inflation forecasts should be of particular concern to businesses and their supply chain management teams since a lot of cost inflation stemming from supply chain forces are fueling the current high rates of consumer inflation. The concern is that while previously, global financial regulators and economists believed that high inflation rates would be short-term and “transitory” in nature, which is now changed toward a longer-term perspective.
Higher inflation leads to the risk of higher interest rates, wage rates, and more subdued buying levels among consumers and businesses.
One uncertainty expressed by the OECD is that recovery will be unbalanced, with different regions, or countries within regions, facing different economic realities.
One of the obvious uncertainties remains the Covid-19 coronavirus, its Delta and newly emerging Omicron variants. The agency’s top economist warned that should the Omicron variant elude current vaccine protections; the world economy could face a sharper slowdown and consequent price declines. The agency called on governments around the world to ensure that vaccines are made available for all countries.
Separately, U.S. Treasury Secretary Janet Yellen told Reuters that the Omicron variant could slow economic growth by exacerbating supply chain problems and depressing global demand for products.
The OECD points to pockets of low vaccination rates among certain countries as remaining breeding grounds for deadlier strains of the virus, and for continued restrictive measures for populations and movement of goods.
This latest forecast also weighed in on climate change, indicating that: “there is too much talk and not enough action when it comes to climate change.” Called for were renewed steps among countries to keep their climate change pledges visible in stated policy and infrastructure investments.
Regarding the “great resignation trend,” the pandemic’s effects leading many workers to withdraw from the workforce, the report indicated that among OECD countries, the largest falls in labor force participation have been in Latin America, with the U.S., Turkey and Israel also having large declines.
IMF October World Economic Outlook
The International Monetary Fund’s World Economic Outlook published in October 2021 included a theme that while the global recovery continues, momentum has weakened and remains hobbled by effects of the pandemic. Further noted was that: “Overall, risks to economic prospects, and policy trade-offs have become more complex.
The report forecasted the global economy to grow 5.9 percent this year and revert back to 4.9 percent in 2022. The 2021 forecast was revised downward for advanced economies due to supply disruptions, and for developing countries, worsening pandemic conditions.
The IMF report also cited elevated levels of uncertainty indicating: “Overall, the balance of risks for growth is tilted to the downside.” Risks surround rising inflation, the duration of ongoing supply disruptions and the eventual path of the pandemic. Regarding the latter, the risk expressed was aggressive Covid-19 variants emerging before widespread vaccination levels are garnered. The October report noted that while 60 percent of the population in advanced economies are fully vaccinated, about 96 percent f the population in low-income countries remain unvaccinated.
The IMF opined that more sustained price pressures and rising inflation would prompt a faster-than-anticipated monetary normalization among advanced economies, in other words, more economic intervention by fiscal policy and banking interests.
The report also expressed the urgent priority in slowing the rise in global temperatures and the growing economic and adverse health effects of climate change.
We have often highlighted the above two economic forecasts as the basis for setting the tone for businesses, supply chain, and integrated business planning teams in their planning assumptions for the coming year.
The theme of uncertainty is similar to that of last year’s annual forecasts at this point in time. However, this year has been primarily about continuous supply chain and transportation focused disruptions that have fueled inflationary and other economic trends as the year 2022 approaches. As we pointed out in our summary of November’s reported global PMI data, production and supply chain activity levels essentially remained stabilized because ongoing supply disruptions and unpreceded extended supplier lead times that have now capped any output growth levels.
Both global forecasts point to moderating growth levels in the coming two years with a lot of continued uncertainty related to Covid-19 outbreaks, and to further economic effects of climate change.
We are of the belief that ongoing supply chain disruptions will continue well into 2022, and possibly spillover to 2023 for certain industries and economic regions. Thus, more dynamic planning and added emphasis on supply chain agility and control measures are called for.
More on that to come in later blogs. Our process will culminate with the publishing of our annual research advisory report: 2022 Predictions for Industry and Global Supply Chains which will publish in early January 2022.
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