MHI Solutions

Economic Market Update

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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This issue of MHI Solutions tackles the important topic of digital technologies in the supply chain industry, especially as it relates the transportation and logistics. Transportation plays a central role in supply chains, whether they are local or global enterprises. And just like the overall supply chain, transportation is facing a digital revolution including new solutions for tracking road, rail, sea and air freight and parcel transportation. These digital technologies are disrupting the industry, but they are also providing im-portant new solutions for transportation inefficiencies and urban logistics challenges. They are also creating new digital business models that enhance transparency and sustainability and contribute to end-to-end supply chain visibility. Like the innovations impacting supply chains, these trends are being driven by the growth of e-commerce and the consumers’ never-ending need for better, faster and cheaper. Ignoring them is done at your own peril.

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