While 2018 was a strong year overall, indicators from Q4 and into Q1 of 2019 point to a global economic slowdown led by the big economies including China, the Eurozone, the United Kingdom, and Japan. The WTO’s 3.9 percent forecast for global trade growth this year is down from 4.7 percent in 2017. While the US has bucked a downward trend due to fiscal stimulus measures and strong economic fundamentals, there is still a risk due to trade conflicts initiated that will have an impact on borrowing and international trade in 2019. While “recession” is not yet a thing, most pundits are using “global economic slowdown” to describe 2019. With a new year underway, several geopolitical trends will impact the global trade climate.
The China Slowdown
Data from recent months show China’s economy is slowing down notably. In November, retail sales grew 8.1%, while export growth fell to 5.4%, the lowest figures in over 10 years. Domestic auto sales also fell by 18%. China’s Academy of Social Sciences think tank predicts GDP growth of 6.3% in 2019. The concern is that China has increasingly looked internally for growth in recent years and is now seeing slowing domestic consumption, alongside slowing exports. The government has been spending less on infrastructure which used to be a stimulus measure, now they are focused on tax cuts and easing loan requirements. How the US/China tariff conflict plays out will also impact this year’s numbers.
Emerging Market Growth
Countries that are and will increasingly benefit from the global trade war are Vietnam, Bangladesh, Cambodia, South Korea, Malaysia, Thailand and other places that are positioned to take on manufacturing that has shifted away from China. These countries are also growing as export destinations and as trade partners with China. In Eastern Europe, countries with greater proximity to Europe, such as Romania, Poland, and Czechoslovakia, have seen growth in investment and manufacturing expansion. For retailers moving towards sourcing from these countries, a strong sourcing software tool or a retail supplier management software platform would need to be utilized, in order to effectively grow and scale retail private label product development.
Global Trade and Tariffs
Protectionism was a big theme for 2018 as many trade agreements such as NAFTA were scrapped, renegotiated or re-forged. The effect of these trade measure will come to bear in 2019. The big questions are China/US tariffs, the Brexit outcome, and the CPTPP, a new Trans-Pacific trade agreement following the US exit from the TPP when Trump took office. While 2018 was a scary year with escalation of a trade war between the US/China, 2019 looks more optimistic as both China and the US appear more willing to compromise on some of the sticky points. Resolution of the trade conflict will lessen the uncertain business climate for importers and manufacturers around the globe.
The Brexit Question
With a deadline for the UK to leave the EU by March 29th and no clear plan or details as to how the exit will happen, a lot of uncertainty sits around trade with Europe and the UK. The concern is that goods will be stuck in customs and face large tariffs which could hamper supply chains. Some are skeptical whether the thinly supported Brexit deal will happen. Consumers are reportedly stockpiling products for fear of limited access to consumer goods. Companies are trying to make contingency plans for how they will respond to orders regardless of the outcome, to better manage retail supply chains.
Oil Price Volatility
Oil prices dropped by 40% in Q4 of 2018 and fell further into Q1 on concerns of a global economic slowdown, lower demand from China and potential oversupply. Other commodities followed oil’s downward trend as China’s manufacturing economy grew minimally and caution prevailed among purchasing managers who don’t want to be stuck with excess raw materials. While oil prices should make gains in Q2 as further supply cuts are implemented by OPEC and other suppliers, volatility is expected to continue through 2019.
Increased Supply Chain Costs
In addition to the impact of tariff increases on supply chains, companies are likely to see increased costs due to customs clearance issues and rising trade finance costs with tighter monetary control and lending conditions due to higher risk of non-payment and depreciation in emerging market currencies. Countries such as Turkey and Argentina are good examples, but other emerging economies including Brazil, South Africa, Indonesia, and several Latin American countries are at risk. In addition, companies will continue to invest in retail supply chain technology to meet the increasing demands and expectations on product delivery and customer service driven by e-commerce and integrated retail concepts.
For more information on how global economic indicators will impact global retail sourcing, product development (retail PLM) and other supply chain related topic, read the full Q1 Retail Sourcing Report, sponsored by CBX Software today!