Global Supply Chain Pricing Could Face New Pressures in 2019
The risk of an escalation in trade conflicts remains elevated, and one major risk in the coming year is the sharp drop-off in world trade growth, which fell from a pace of above 5% at the beginning of 2018 to nearly zero at the end, if such an escalation were to occur, a contraction in world trade could slow the world economy even more.
Global Trade Management Resources
Vanguard Economic Market Outlook 2019: Down but Not Out
As the global economy enters its tenth year of expansion following the global financial crisis, concerns are growing that a recession may be imminent, and although several factors will raise the risk of recession in 2019, a slowdown in growth…
- Global Trade Management: The Past, Present and Future
- Digital Sourcing in the New Retail Economy
- Enabling Supply Chain Agility
- Global Trade Technology Adoption: Is Your Organization Ready…
- All Resources
At Vanguard, investors can earn more over time simply by keeping more of their investment returns. Unlike other investment companies, we don’t have outside owners taking a portion of clients’ returns. With no other parties to answer to, we can keep costs low and we can make every decision…
- Company Quicklook
Global Growth Predictions
The global economy started 2018 with strong, synchronized growth, but the momentum faded as the year progressed and growth trends diverged.
Notably, the economies of the eurozone, the United Kingdom, Japan, and China began to weaken. In contrast, the U.S. economy accelerated, thanks to the fiscal stimulus.
According to Nariman Behravesh, chief economist at IHS Markit, growth in the U.S. will remain “above trend,” while other key economies will experience further deceleration.
As a result, he predicts that global growth will edge down from 3.2% in 2018 to 3.0% in 2019 - and will keep eroding over the next few years.
“One major risk in the coming year is the sharp drop-off in world trade growth, which fell from a pace of above 5% at the beginning of 2018 to nearly zero at the end,” says Behravesh.
“The risk of an escalation in trade conflicts remains elevated. If such an escalation were to occur, a contraction in world trade could slow the world economy even more. At the same time, the sell-off in equity and commodity markets, on top of the gradual removal of accommodation by some central banks, means that financial conditions worldwide are tightening.”
Combined with heightened political uncertainty in many parts of the world, these risks point to the increased vulnerability of the global economy to further shocks and the greater probability of a recession in the next few years.
However, IHS Markit analysts note that the chance of recession in 2019 is still relatively low.
Supply chain managers may face mixed blessings on the domestic front, based on estimates about sustainable growth in the labor force and productivity next year.
IHS Markit assesses the potential growth in the U.S. economy to be around 2.0%. In 2018, U.S. growth was a well above trend at 2.9%, compared with only 2.2% in 2017.
“The acceleration was almost entirely due to a large dose of fiscal stimulus with tax cuts and spending increases put in place at the beginning of the year,” says Behravesh.
“The impact of this stimulus will still be felt in 2019, but with diminishing potency, as the year progresses.”
Consequently, IHS Markit expects growth of 2.6% this year, which is less than in 2018 but still above trend.
They believe that, by 2020, the effects of stimulus will have fully dissipated, ushering in a new level of maturation.
Economists add that over the next year, there are likely to be “countervailing pressures” leading to a plateau.
“On the downside, housing has been a disappointment, the dollar has been rising, credit conditions are tightening, and higher tariffs could still hurt growth,” adds Behravesh.
“On the upside, interest rates are still low, and fiscal stimulus is still aiding expansion. For the balance of 2019, U.S. economic fundamentals remain fairly solid.”
The Energy Outlook
Considerably less solid, however, is the energy outlook, says Derik Andreoli, Ph.D.c, director of economic research and forecasting at Mercator International and the “Oil and Fuel” columnist for Logistics Management.
“Energy markets have never looked more uncertain, and uncertainty is the mother of volatility, our industry is facing a number of critical unknowns.”
Chief among them, says Andreoli, is on the supply side of the equation. Shippers are eager to learn the extent of threats made by OPEC and Russia (OPEC+) to follow through on recent agreements to cut oil production by 1.2 million barrels per day.
“We don’t know yet if shale producers alone will be able to lift production at a rate that’s commensurate with rising global demand,” he adds.
On the oil demand side of the equation, the question remains how long the developing world - which has accumulated massive amounts debt denominated by the U.S. dollar - will respond to rising U.S. interest rates and a potentially steep increase in the value of the dollar.
“As oil is traded in U.S. dollars, rising interest rates will erode the purchasing power of other countries, which should suppress global oil demand growth somewhat, but not enough to ease oil price pressures,” says Andreoli.
In short, oil production cuts should push prices up over the first half of 2019. And like last year, this cost should rise from around $50 per barrel in January to around $70 per barrel sometime in the first quarter.
“Over the second quarter, oil prices should continue to rise as domestic shale oil producers struggle to meet the forecasting pressures put on logistics managers charged with balancing all modes,” adds Andreoli. “Demand for all refined products will increase in price, too.”
The Year of Living Dangerously: 2019 Global Economic and Market Outlook
In the above video, Macquarie’s Chief Economist Ric Deverell shares his global forecasts for 2019, he discusses key markets, the impact of political disturbances, global growth, and inflation.
Related White Paper
Vanguard Economic and Market Outlook for 2019: Down but Not Out
As the global economy enters its tenth year of expansion following the global financial crisis, concerns are growing that a recession may be imminent, and although several factors will raise the risk of recession in 2019, a slowdown in growth - led by the United States and China - with periodic “growth scares” is the most likely outcome.
You must be logged in to post a comment. Login.
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]