Last week, the Financial Times published a report with the headline: ‘Global Economy Enters Period of ‘Synchronized Stagnation.’

That headline caught our Supply Chain Matters attention, and indeed, should catch the attention of global based supply chain management teams.

The basis of the report stems from The Brookings- FT Tracking Index for Global Economic Recovery which essentially tracks indicators of economic activity, financial markets and investor confidence with their historical averages. The headline indices have been falling since its peak in January 2018 with the latest being the lowest since early 2016.  According to the research, the notion of stagnation implies: “weak growth in some countries and no growth or mild growth in others.”

The report notes that other leading forecasters such as the World Bank and the OECD have further expressed concerns for declining global growth due to escalating trade conflicts, trimming their growth forecasts to the weakest levels since the 2008-2009 global financial crisis. While the researchers pointed to few signs of actual global economic recession, they observed that government policymakers remained struggled in reviving growth or stimulus. That could imply a more prolonged downturn which will invariably continue to spook investment markets.

In a blog posting published earlier this month, Supply Chain Matters once again highlighted global supply chain operational indices all reinforcing global wide contraction, and for the first time, now including the United States. Global Supply Chain Management Activity Q3-2019

We further called attention to the declaration from the World Trade Organization that global trade volumes are forecasted to grow at the weakest pace since the global financial crisis. Such data which often represents the multiple tiers of product supply and product demand networks also implies further contraction under the current threat of increased geo-political trade conflicts and escalating punitive tariffs.

 

What it Implies

From our Supply Chain Matters lens, quantitative data continues to reinforce a very uncertain global economy and new investment environment. A period of synchronized contraction is an indicator of slowing customer product demand and supply network activity now reflecting a coordinated network based downward trend in the coming year, perhaps longer.

Such conclusions invariably motivates Chief Financial Officers (CFO’s) to reign in costs and spending while limiting only the most essential longer-term investments.

It further places a different emphasis for senior leaders and their respective teams in the coming year’s sales and operations planning for various global region product demand while adjusting supply network needs and expectations. The impact of added tariffs have reached a stage where supply chain management and lines-of-business teams are now identifying significant areas of added cost concern with needs for alternative sourcing or product development strategies.

The threat or uncertainty of global-wide business and operations contraction further places an increased looking glass on needed investments in people, process and advanced technology. Now is the time to prioritize such investments in appropriate categories of need and implications for the business.

From our lens, the emphasis needs to be managing a year of extraordinary uncertainty and increased risks, which will require an ability to perform a lot of supply chain wide operational analysis and scenario-based decision-making.

Insure as best you can, that what investment monies there are are focused into these areas in people, process and advanced technology dimensions. As noted, expertise in global trade regulations and their impact, investing in overall business and supply network agility will likely be rated high.

 

Bob Ferrari

© Copyright 2019, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.