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ECONOMIC MARKET ANALYSIS: Downside Risks to the 2019 and 2020 Outlook

Economic growth in the United States was solid in 2017 and 2018. But the outlook for 2019 and 2020 is not as strong. Trade risks present downside risks to U.S. growth, global growth and the overall material handling outlook for 2019 and 2020. Furthermore, higher interest rates and rising labor costs also present downside risks to corporate profits and economic growth. This does not mean a Great Recession is brewing. But after two strong years, slower growth ahead appears likely.

* By Jason Schenker *

Trade casts a long shadow on future growth

When trade risks increased in March 2018 with US Section 232 and Section 301 tariff announcements, it pushed business leaders and traders to reassess their expectations. Companies were forced to incorporate downside risks to growth from tariffs and trade into their strategic planning for the first time in decades. Fortunately, the US economy, global economy, and material handling have remained generally positive for most of this year.

In July 2018, the International Monetary Fund (IMF) left its forecasts of global growth for 2018 and 2019 unchanged at 3.9 percent. These are very strong economic growth rates, although the IMF also cautioned that tariff and trade risks could reduce global economic growth by 0.5 percentage points in 2020. The impact of that difference of half a percentage point off of global GDP growth should not be underestimated. It would likely have a significant negative impact on global growth that would ripple through global manufacturing, non-ferrous metals demand and prices, crude oil demand and prices, as well as global equity markets.

To put these risks in perspective, the rate of global GDP growth in 2017 was 3.7 percent. At that level, growth was strong and supportive for industrial metals prices, oil prices, global manufacturing and global equities.

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Emerging technologies such as IIoT, robotics and artificial intelligence provide exciting opportunities for supply chains. They also mean an exponential growth in the amount of data these supply chains generate. When properly utilized, this data can provide crucial information to improve efficiency, reduce costs, enhance transparency and customer service. But it comes with risk. The more digitized a supply chain becomes, the more it is at risk of cyberattack. Hackers are constantly finding new ways create data breaches they can exploit. The reality that most supply chains require third-party suppliers down the chain only heightens this threat. No matter the scale of your supply chain, it is essential to have solid cybersecurity processes in place to manage and mitigate the growing risk of cyberattack. That’s what this issue of MHI Solutions is all about, from cybersecurity threats in an IIoT world to dark data to the human factor in cybersecurity to blockchain as a potential solution.

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