14 Downside Risks to Global Manufacturing Growth
In May, I examined the reasons for optimism in the five-year global outlook, drawing on my recent webinar for senior executives at Pentair.
Today, I turn to the major factors that are holding back growth. Unfortunately, there are more restraints than momentum.
- I predict no growth in U.S. manufacturing industrial production in the first half of this year and little growth for the year as a whole.
- Several key global economies are in recession, including Brazil, Russia, and Norway.
- Asia (particularly China) will be less of a growth driver than in the past; the growth slowdown on the continent is part cyclical and part structural.
- Europe is struggling with 10%+ unemployment, the emerging economy slowdown, the refugee crisis, and anxiety over Greece and a possible Brexit.
- Advanced economies have limited policy options in a new recession. Fiscal policy is constrained by high debt and monetary authorities are already at zero or negative interest rates.
- The refugee crisis is putting pressure on government budgets and resulting in political backlash.
- Foreign trade is depressing U.S. economic growth and the trade position is deteriorating in most manufacturing industries. Of the 17 industries I looked at, electric lighting and household appliances had the most adverse trade ratios in 2015.
- Within consumer-related manufacturing, logging, HVAC equipment, and apparel should all post production declines this year.
- Within investment-related manufacturing, I predict 2016 production declines in many industries, with drilling equipment, agricultural equipment, and engines and turbines suffering the most. Many of these industries are negatively affected by the sector’s rising trade deficit.
- Investors have turned risk-averse and are drawing money out of emerging economies and back to safe havens such as the United States.
- World steel production will decline this year. China is responsible for half of world production.
- Emerging economies are in the late stages of the credit cycle, making them vulnerable to slower growth as they deleverage after excessive debt growth.
- Low commodity prices have led to protracted recessions in emerging economies.
- Brazil’s recession should last through 2016. The nation is beset with multiple troubles, including a crisis of confidence in political leaders, declining real wages, soaring unemployment, and a contraction in bank lending.