It is Friday and this has been a rather stark week for global economic news.
In order to keep our Supply Chain Matters readers focused on some key big-picture developments, we thought we would share some of this week’s economic news highlights coupled with some broader forecast data.
Much of this data will cause supply chain management leaders and strategists, along with various multi-industry integrated business planning teams some pause in planning activities for the second half of this year, and likely next year as-well. However, there is some signs of optimism relative to worst-case scenarios.
United States Economy
The U.S. economy reportedly contracted at a record rate in the second quarter. The U.S. Commerce Department indicated that U.S. GDP fell at an unprecedented 32.9 percent annual rate last quarter. This number represents a 9.5 percent decline compared with the year-ago quarter and has the context of being the steepest fall in government records dating back to 1947.
Consumer Spending reportedly fell at a 34.6 percent annual rate while Business Spending was noted as declining at a 27 percent annual rate.
As of mid-July, 17 million people are receiving forms of unemployment benefits. Once more, an ongoing surge of virus infections among certain U.S. states portends added economic concerns relative to the second half of the year.
While the U.S. House of Representatives passed another series of economic stimulus actions several weeks ago, the measure is bogged down in the U.S. Senate over partisan differences.
The Eurozone economy experienced a more precipitous decline with a reported 40.3 percent decline in GDP in the second quarter. According to the European Union ‘s statistics agency, such a decline represents the sharpest decline since comparable records began in 1995.
Among select countries, Germany’s GDP shrank 10 percent in the quarter, the steepest decline recorded since 1970, while France’s economy contracted 13.8 percent in the second quarter. Germany has seen one of Europe’s biggest coronavirus stimulus packages at €130 billion. Spain was especially impacted with a reported 18.5 percent GDP decline, wiping out economic growth of the previous six years.
While the EU is currently on the whole, not experiencing a noted surge in coronavirus infection rates, there are mixed views among international business media as to whether the U.S. or Europe will bounce back more during the second half of this year.
E.U. leaders unveiled a reported €1.8 trillion ($2.1 trillion) ground breaking economic stimulus plan last week that includes support for job protection programs and other measures.
Mexico’s National Statistics Institute reported that the country GDP contracted 17.3 percent in the second quarter, down 18.9 percent from the year-earlier period.
The ongoing virus outbreak has caused many manufacturing, retail and services firms to temporarily shut down throughout April and May. Gradual re reopening began in June but restrictions remain in place.
Industrial production reportedly declined 23.6 percent from the first quarter while services decline 14.6 percent.
Today, Statistics Canada stated in a flash estimate that Canada’s real GDP is likely to plunge by a record 12 percent in the second quarter, with the period heavily impacted by broad coronavirus shutdowns that crippled the economy.
According to a Reuters report, Economists had noted that while the May and June recovery appears stronger than once feared, it is still not enough to reverse the steep decline incurred in April.
The Bank of Canada had indicated earlier this month it expects Canada’s economic activity will not return to pre-pandemic levels until 2022.
Latest World Trade Outlook
Last month, the World Trade Organization (WTO) indicated that world trade fell sharply in the first half of the year, as the COVID-19 pandemic continued to upend the global economy. However, the WTO pointed to rapid government responses as helping to temper the contraction, with Economists now believing that while trade volumes will register a steep decline in 2020, they are unlikely to reach a worst-case scenario of a 32 percent decline that was projected in April.
According to the agency’s Mid-Year Report released in June, the outlook for the global economy over the next two years continues to remain highly uncertain. That was reportedly reflected by the range of GDP estimates from other international organizations:
“The World Bank, OECD and IMF have all released forecasts showing significant slowdowns in global trade and GDP; all are broadly consistent with the WTO’s forecast for the current year. The World Bank’s recent forecast would see global output decline by 5.2% in 2020, falling between the WTO’s optimistic and pessimistic range. Other international organizations’ GDP forecasts for 2020 are also increasingly negative, even as their trade projections stay roughly in line with the WTO’s optimistic scenario. These estimates imply a less negative trade response to declining GDP growth than was observed during the global financial crisis of 2008‑09.”
The summary takeaway seems clear, business planning and supply chain management teams need to be prepared for continued high uncertainty and likely changes. Longer-term planning remains rather challenging and many organizations will need to continue to rely on near-term command and control as well as scenario focused planning and supply network response techniques. While there were some signs at the end of June of a global manufacturing and supply chain momentum increase, constant sensing and monitoring remains essential.
With the all-important second half including the holiday fulfillment period, and with many consumers turning to online and contactless channels of buying until a virus vaccine is evident, prepare for a very dynamic upcoming six months concerning areas of global product demand and product supply.
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