Last week Supply Chain Matters published an overview and highlights of our 2021 Predictions for Industry and Global Supply Chains.

Such predictions are provided to clients, technology providers and blog readers in the spirit of advising senior and line-of-business executives, multi-industry cross-functional supply chain management and supporting information technology teams a sensing of what to expect in the coming year, Our goal is to depict how likely global, regional, economic, business and industry trends will impact and likely influence required supply chain management actions in the coming year.

In This Part Two of this blog series, we outline our included summary and compendium of quantitative global economic and regional business outlooks that will be included in our 2021 predictions report.

2021 Predictions

Quantitative Outlook- Global Economic Outlook Remains Highly Uncertain

Executive Summary

Entering the year 2020 in early January, our prediction in this area echoed a rather subdued economic outlook with downside geo-political risks testing the agility and resiliency of multi-industry customer and demand and supply networks. After a full year of pandemic and other related disruptions, the extremes of overall supply chain and infrastructure response capabilities have indeed been tested.

Our assessment of economic and business forecasting data leads us to believe that the coming year will require anticipation of continued uncertainty, volatility  and likely added disruption. A critical dependency will be continued availability, distribution and inoculation of effective vaccines to neutralize virus spread.

In spite of such challenges, innovative organizations should view uncertainty as the motivation to instill new thinking, added innovation and transformation to insure that that that product demand and supply networks can continue to pivot more readily to help the business gain industry competitive advantage.

The year 2021 outlook is again one of high uncertainty and dependent on a lot of assumptions, while supply chain managements teams will be expected to be able to support business revenue and profitability needs amid rather challenging markets and working conditions. While global populations are hopeful for the arrival of effective vaccines during the coming year, industry supply chain management teams should assume a condition of random virus flare-ups, supply chain disruptions or global transportation bottlenecks.

Since April 2020, there has been a steep “V” shaped global manufacturing activity response to perceived added inventory needs which has outpaced services industries which continue to struggle with the cumulative impacts of the pandemic. How this ramp sustains itself in 2021 will be critically important.

The most significant difference, however, is a new appreciation at C-Level and Board Levels that supply chain business process and customer fulfillment capability is the core of the business mission. That will be an advantage to supply chain leaders in what we are characterizing as a Year of Renewal.

 

Economic Outlooks

According to the World Bank, the novel COVID-19 coronavirus pandemic delivered an enormous shock to the global economy and led to the deepest recession since the second world war. The virus struck early and remained a factor for the entire year. Consequently, there is little question that the year 2020 presented unprecedented economic and operational challenges for multi-industry and global supply chains. The President of the World Bank indicated in early December 2020 that with the exception of China, it would take upwards of two to three years for global output to return to pre-pandemic levels as developing nations slowly climb out of economic slump. Further indicated was that advanced economies are expected to recover more quickly

The year 2021 will unfortunately be just as challenging, and much will depend on the global availability and administration of effective vaccines that can protect global populations. As we publish this blog, three different vaccines had reached emergency approval process among different countries with the potential for a dozen more completing patient trials during 2021. There are obviously optimistic viewpoints as to whether herd immunity among certain populations can be achieved during 2021 and much will be dependent on the ability of vaccine providers and various governments in their overall efforts.

 

Global and Regional Outlooks

The International Monetary Fund’s (IMF) World Economic Outlook published during October 2020 featured an Executive Summary headline: “While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.

The agency expects global growth for 2020 to be an adjusted negative 4.4 percent, less severe than forecasted in June 2020. As a matter of reference, entering 2020 the IMF growth estimate was a modest 3.4 percent global growth.

For the upcoming 2021 period, global growth is projected at 5.2 percent over 2020’s depressed levels. Further, the level of global GDP in 2021 is expected to be what was termed as a modest 0.6 percent above that of 2019. The agency provides the assumption that local transmission of virus levels will be brought to low levels globally by the end of 2022.

The report provides a downside warning that the risk of worse growth outcomes remain sizable with a virus resurge, or progress on treatments and vaccines is slower than anticipated.

The agency further points to such growth projections implying wide negative output gaps and elevated unemployment rates from 2020 spilling into 2021 across advanced and emerging market economies.

Among advanced economies, the IMF is projecting a growth rate of 3.9 percent for the coming year after an expected negative 5.8 percent performance in 2020. Projections call for the U.S. economy to grow by 3.1 percent in 2021 after contracting 4.3 percent in 2020. The agency’s outlook for the European Union is 5.2 percent growth in the coming year after a projected negative 8.3 percent contraction in 2020.

Among emerging market and developing economies, the projection calls for a 6 percent growth rate after an overall contraction of 3.3 percent in 2020. As expected, China is expected to fare well from other nations with an expected growth rate of 8.2 percent in 2021 after a projected 1.1 percent growth rate in 2020. China was one of few nations that was able to quickly recover from the pandemic starting in the second quarter of 2020. India is expected to be another stand out for this region with an IMF projected growth rate of 8.8 percent in 2021 after an expected contraction of 10.3 percent in 2020.

In December 2020, the Organization for Economic Cooperation and Development(OECD) warned that the resurgence of the pandemic in second half of the year had dramatically weakened global recovery levels and warned of further impact if governments withdraw economic stimulus measures too soon or failed to deliver effective vaccines. OECD trimmed its 2021 global growth forecast to 4.2 percent from the 5 percent forecast issued in September. On a regional basis, growth projections for the European Union were trimmed to 4.2 percent for 2021 while the projection for the U.S. economy was adjusted downward to 3.2 percent. The agency further warned of divergence among different regions that could lead to changes in the world economy with the potential of China “accounting for over a third of global expansion” in the coming year.

 

Financial Outlook

With a good many economies in financial recession as a result of COVID-19, the sentiments of business CFO’s remains a rather important consideration for multi-industry supply chain management teams in terms of budget resources in the coming year. One gauge of such outlooks is The CFO Survey, a collaboration of Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.

This survey’s October 2020 gauging indicated that corporate financial decision-makers generally expect employment and revenues to remain below pre-COVID levels until at least some time in 2021. This survey reportedly reflected optimism about the future financial prospects for the U.S. economy and their own firms after confidence plummeted in the first quarter of 2020.  The average optimism was just above 70 on a scale of 100.

According to John Graham, Finance Professor at Duke’s Fuqua School of Business: “More than 60 percent of respondents reported that revenue projections have not recovered to their pre-COVID mark and about 40 percent report lower employment. Moreover, only about one-quarter of the firms that are below pre-COVID levels anticipated a full revenue or employment recovery by June 2021.

Many industry supply chain management teams will likely have to anticipate limitations on spending and investment other than business critical needs for the first half of 2021. From our lens, the implication is that any strategic or tactical transformation initiatives will require broad-based C-Level sponsorship, preferably line-of-business driven, and with measurable business benefits.

 

State of Global Supply Chain Activity Levels

Indices for global-wide production and supply chain activity levels at the close of November 2020 pointed to a pronounced and sustained “V” shaped response from the early periods of the COVID-19 coronavirus outbreak.

According to the banner headline of the closely watched J.P. Morgan Manufacturing PMI™, a reflection of a compendium of global wide indices: “Global manufacturing expanded at one of the fastest rates in almost a decade during November

The index posted a 33-month high value of 53.7 for November. The report authors indicated that output growth was one of the best over the past decade.  Solid growth was recorded across all three sectors: consumer, intermediate and investment goods, with the steepest increase coming from investment goods. The October 2020 report had pointed to acceleration being fueled by intermediate goods. We attributed the results of both reports to be continued signs of global supply chain momentum, absent any significant coronavirus disruptions occurring over the coming months, and into the first half of year 2021.

 

This concludes Part Two of this 2021 predictions series. Part Three of this series to be published tomorrow will share quantitative data and forecast outlooks relative to global supply networks.

Further, if readers have some available time this week, take the opportunity to listen to our latest podcast episode featuring MIT Professor Yossi Sheffi as he discusses takeaways from his newly published book, The New (Ab) Normal, which also provides important themes that business and supply chain management.

This supply chain industry analyst was also featured on a recent video interview. In his Burning Platform- Digital Acceleration Video Series, enterprise software influencer, author and Deal Architect blogger Vinnie Mirchandani interviews me on what happened among various industry supply chains in 2020, and what we are predicting for the coming year.

 

Bob Ferrari

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