In this Supply Chain Matters Editorial Commentary we continue in our efforts to provide supply chain executives and strategists updated information related to global trade and the global economic climate and its ongoing implications to global supply chains.

This week provided some slightly optimistic news, optimistic in the context of prior dire news related to this year’s global economic forecast. None the less, we advise industry supply chain management teams to continue to plan for a highly uncertain economic outlook for the next two years.

Supply Chain Matters Editorial Commentary

The Paris based Organization for Economic Co-operation and Development (OECD) has revised its economic forecast issued in June and now indicates that the global economy will contract less sharply. The research body now forecasts a decline of 4.5 percent in growth this year compared to the 6 percent forecast issued in June.

Such news certainly takes on a context dimension in that a 4.5 percent decline is still rather significant as well as consequential, but it is better than what was previously believed.

The June forecast assumed a single shock scenario and no basis of a termed second-wave outbreak whereas the latest forecast now assume continued sporadic virus outbreak with targeted interventions on the part of governments. None the less, as Bloomberg and other business media has noted, the forecasted long- term horizon still indicates that by the end of 2021, the global economy will have still not recovered from pre-pandemic output levels. The OECD Secretary General amplified that reality in his message that a ‘V” shaped economic recovery is not going to occur.

Included in the latest OECD forecast are noted significant revisions for China, the Eurozone sector and the United States, along with added cautions which industry supply chains should heed.

The agency expects that the U.S. economy will be able to bounce back from its 2020 decline only if U.S. lawmakers can agree to another round of rather significant fiscal stimulus. While the Eurozone sector is forecasted to be impacted less than that predicted in June, the forecasted rebound is less that that of the United States.  Regarding China, the agency now forecasts some growth for this country’s economy this year. China itself has been reporting rather positive overall production and retail sales data of late, including its August economic data.

The latest OECD forecast provides what is noted as dire warnings for certain poorer or developing nations currently suffering from continued spread of the virus. As an example, the latest forecast for India calls for a 10.2 percent economic decline this year vs. the 3.7 percent decline forecasted in June. That will obviously be significant, with implications for certain industry-specific supply networks.

 

Supply Chain Matters Perspectives

From or Supply Chain Matters lens, some of this is a credit for such revision rests with the many manufacturers, retailers and services providers that have responded to the magnitude of the ongoing COVID-19 coronavirus disruption. Credit also goes to the many governments that have rallied to support individual healthcare provider and workers as well as economic stimulus to buffer impacts on small businesses and individual workers.

Our series of blogs highlighting existing monthly global-wide production and supply chain activity levels have pointed to a “V’ curved response over the past several months in terms of overall activities.  With this latest OECD economic forecast now as a backdrop, the ongoing resurgence is likely a reflection on the many manufacturing, retail and service provider supply chain teams responding to demand levels as global populations return from lockdowns and/or activity restricts. For the most part, supply chain management teams have responded admirably to ensure that customer demand and supply networks are restored. That stated, we continue to urge caution in not interpreting this operational surge to be sustainable.

This latest OECD forecast coupled with views from various global economists continue to point to other challenges and cautions ahead, particularly if there is a global second-wave virus resurgence, or delays in global-wide vaccine availability.

Supply Chain Matters will be featuring added commentaries and perspectives on the specific supply network and logistics challenges related to global vaccine distribution since it is becoming rather obvious that a lot will depend on the success of this effort.

As we stated at the very beginning of this pandemic, it will be pharmaceutical, healthcare delivery and vaccine supply networks that determine the future timeline or amplitude of global economic and supply chain activity growth.

 

Bob Ferrari

© Copyright 2020, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.