World economic outlook

Our Q2 Sourcing Report for 2021 is now live! Below are a few nuggets of information to give you insights into the current state of the retail industry, but the report itself is packed full of knowledge to help you better understand the retail landscape to allow you to make informed decisions moving forward.

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China-US Relations – Where are they headed?

China recently released their 14th Five Year Plan and the renewed focus on “Made in China” policies, a bone of contention with the US, suggests that China/US trade and political tension will continue. The plan has more of an internal focus on strengthening the domestic economy and cutting the reliance on foreign technology and imported resources. The long-term goal is to turn China into a self-sufficient advanced economy and a leader in important emerging industries. Unlike other five-year plans, there are no specific GDP growth targets.

U.S. and China ropeIt looks like the big buzzword which will define US/China relations in the next few years is “dual circulation”, referring to China’s policy of reorienting their economy toward internal consumption without closing off from the rest of the world. This policy is not new but has been reiterated repeatedly by Beijing this year. For China to join the ranks of “advanced economies,” it will need to step up private consumption, which currently stands in the region of 40%, far lower than the 60% seen in developed economies such as the US.

One of the questions in US/China relations going forward is what stance Biden will take. Expectations are that the Biden administration will roll back some of the tariffs and restrictions on Chinese enterprises implemented by Trump. Encouragingly, the US recently lifted a ban on Chinese smartphone maker Xiaomi and have shown other signs of moderation. Certainly we can expect a more civilized dialogue between the two, however given the long term implications, it’s unlikely the US will back off entirely on protection of intellectual property and other issues that will help China compete globally.

Starting with Trump, the US suspended or exited many international trade agreements, a trend which Biden has not yet reversed. At the same time China has been busy forging international trade partnerships such has the RCEP and the CPTPP and building out their Belt and Road initiative which is securing their influence across Asia, Africa and wherever else they can extend it. Critics of the Biden administration argue that a lack of international trade strategy is a weakness. Aside from China’s strategic external investment moves, as of 2019 China surpassed the US as the largest recipient of foreign direct investment. Meantime, many US companies are finding it harder to operate in China where they face restrictions on foreign enterprises, the need to have a local partner and lack of intellectual property protection.

Biden’s strategy so far has been to forge stronger ties with Japan and European countries to counter China. Part of the problem is the underlying belief by both Republicans and Democrats that globalization has worked against American jobs and interests. So while China looks internationally to support their internal growth, the US continues to try to protect against foreign competition to secure American jobs and other interests. History will tell, but this inward focus and defensive strategy might give China the edge it needs.

Post Pandemic Recovery Predictions

As global economies shift from survival to recovery, the good news is that economies are generally rebounding at a good pace. In a recent McKinsey Global Survey, 69% of respondents believe that global economic conditions will improve in the next 6 months.  The UN recently raised its global economic forecast to 5.4% growth for 2021. The unwelcome news is there is still a lot of uncertainty over Covid as both input prices and finished goods prices are going up, while wages are not.

Looking at advanced economies, Europe and the US are expected to regain their pre-pandemic levels of output by the end of this year. There are differences in outlook though, with Europeans generally less optimistic over employment prospects than Americans. Many analysts believe that post-Covid economic recovery will be uneven, with emerging economies in South Asia, Africa, and the Caribbean faring worse.

World economic outlookInflation was not much of an issue in advanced economies in recent years, but this looks to be changing as the pandemic winds down. In May, the US government announced that the consumer price index was 4.2% higher year on year, the fastest increase since the 2008 downturn. American consumers are seeing higher prices for food, fuel, and housing. This makes sense when we look at raw material and commodity prices which have all soared over the past year. Shipping rates from Asia to Europe and the US have more than doubled, oil prices have reached multiyear highs and lumber prices have tripled. At least in the near term we will be hearing about supply chains as capacity constraints and material shortages cause delays in order and prices keep increasing.

The way people work, behave, and spend has all shifted during the pandemic and some of these changes may be longer term. Consumers are by necessity behaving differently which has implications for the types of businesses that will do well and those that will fail post-Covid. Covid saw the rise of digital shoppers and the adoption by many businesses of new ways to interact with their customers. Nesting is likely to continue to be a trend. With a focus on productivity, increasingly automation and robots are being used, which obviously poses a threat to employment.

The IMF and the World Bank predict longer term scars post-Covid. Most economies are experiencing a v-shaped recovery, with contraction following the initial upswing. The big concern in the Covid recovery period is inflation and how economies will fare once stimulus measures end and market forces set in again.

All these issues and more are covered in the most recent CBX Q2 2021 Sourcing Report. To learn more about how to address some of these concerns with the CBX platform, feel free to contact us directly.

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