In its recently released April forecast, the International Monetary Fund (IMF) upgraded its global economic forecast for the second time in three months.

The IMF now forecasts global economic growth in 2021 to be 6 percent compared to a 5.5 percent forecast in January. That number alone represents the highest level of global growth in the past four decades. For the year 2022, the IMF now forecasts a growth level of 4.4 percent compared with a prior forecast of 4.2 percent.

As with all forecasts, there are caveats and assumptions. As for when various economies will return to pre-pandemic activity levels, the IMF indicated that many advanced economies will not reach such levels until 2022. For emerging market and developing economies, recovery is not currently forecasted until 2023. A lot depends on whether new variants of coronavirus take hold, along with the supply and administration of vaccines to the bulk of populations.

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Among the revised numbers:

  • Advanced economies will grow 5.1 percent this year, with the United States and China as the primary drivers. The U.S. is now forecasted to grow at a level of 6.4 percent, compared to a 5.1 percent forecast in January. China is now expected to undergo growth of 8.4 percent compared to 8.1 percent. The Eurozone is forecasted to grow at a rate of 4.4 percent compared to the earlier forecast of 4.2 percent. Forecasts were also raised for Canada, Italy and the United Kingdom.
  • Emerging market and developing economies are expected to now grow a rate of 6.4 percent from a prior forecast of 6.3 percent. India stands out with a revised growth of 12.5 percent compared with 11.5 percent in January. Output in Latin America is now projected to grow by 4.6 percent.
  • Global trade volumes are expected to grow by 8.4 percent, up from 8.1 percent in January.

The IMF raised a cautionary sign related to price inflation, warning the inflation could turn more volatile given the rather low commodity price levels of a year ago. As Supply Chain Matters has noted in its reviews of monthly PMI reporting, higher input prices now permeate global supply networks, not to mention exploding transportation costs.

Of particular note is the IMF’s warning that divergent recovery paths will likely widen a global gap in living standards, with estimated per capita income losses from 2020-2022 at the equivalent of 20 percent of the per-capita GDP numbers in 2019, excluding China. That should be a cause for concern.

 

Implications for Global Supply Chains

As with all forecast data, there are good and cautionary implications.

On the positive, businesses and their associated global supply chain management and IT support teams can be somewhat more optimistic relative to future business growth. Confidence levels relative to future product demand levels should likely rise with the usual caveats. Hopefully, that can free-up some investment initiatives targeted for key supply chain management transformational initiatives for added agility and resiliency. As noted in a prior Supply Chain Matters commentary, supply chain digital transformation efforts will continue in a phased approach, but perhaps the timetables can be moved forward.

On the cautionary side, increased economic growth comes in the midst of the perfect storm of added supply chain challenges that have resulted in increased supply lead times, shortages of critical components such as semiconductors, and continued turbulence and disruption in global shipping schedules. In order to take advantage of these opportunities for growth, businesses and their global supply network partners will have to overcome these challenges, and that make take added time. If key components and products are based in China and other parts of Asia, factor in the real possibility of increased door-to-door transit times along with added capacity bottlenecks.

From our lens, all the signs point to a rather intense second half of the year in terms of planning and response. Visibility is essential.

Finally, as has been the case for the past several years, supply chain and sales and operations planning teams must continue their diligence in specific regional and country focused planning. As the latest IMF forecast reiterates, some regions and countries will grow faster while others may lag. That is an important consideration for inventory and capacity placement. A further important takeaway is increased monitoring of key suppliers among developing regions as their economies continue to struggle.

 

Bob Ferrari

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