Dooomed! Dooomed! We’re all doomed! *

The riots took the focus off recent economic figures and announcements. But it now seems clear that we are heading back into recession – or at best, stagnation - in the US and Western Europe.

What is different this time round, and this is where it becomes significant for procurement people, is that we're not seeing across the board weakening of commodity prices that would be expected at this stage in the economic cycle. Sure, oil is well off its peak, many metals have been volatile, while gold and silver boom, and some food commodities are also strong. So we're getting inflationary problems at the same time as economic weakness, a combination we haven't seen for some time.

I was talking to a major buyer of food commodities last week, who felt that many in the industry were expecting prices to revert to the previous “norm”. But, as he said, how do we know that the new “norm” might not be significantly above the old, given growing demand from developing countries and the strong influence of speculators? And, as he said, “all the money coming out of the stock markets has to go somewhere – and some commodities look like a pretty attractive home for that cash”.

So forecasting prices – commodities or even non-commodity goods and services – is challenging for procurement and finance executives. It's not helped by the Bank of England now boasting a recent track record of inflation forecasting that a chimp with a Ouija board could probably have beaten.

On a more personal note, certainly in the UK, my memory is that when we last had 'stagflation', the inflation element was being driven by rising wages as much as anything. Not this time – which is why it feels like very bad news for many people, struggling with higher prices for essentials while wages are frozen or worse.

Other news that got a bit lost recently included the latest economic figures from Greece. Greece borrowed over 80% of their annual forecast requirement in the first 6 months of the year. The Economist says that “this year’s deficit could reach 13.5% of GDP, compared with a target of 7.5%”.

The reduction in GDP this year is now forecast to be at least 4.5% against a forecast of 3.8%. Meanwhile revenues from privatization are way below what is required, and they’re not increasing tax revenues fast enough. And let’s face it; if you were a wealthy Greek, what would you be doing with your resources right now? Getting your wealth the hell out of there, I suspect.

So anyone want to bet on Greece hitting their deficit reduction targets given the current run rate? If Greece miss their targets, Germans will get (quite rightly) even more concerned about handing over their cash to support profligate Greeks – and the banks to whom they owe money.

I therefore don't see European integration and the Eurobond having a cat in hell's chance of happening whatever George Osborne, Sarkozy et al might like to see. So some sort of Greek default (at least) followed by the breakup of the Euro – in its current form at least – now seems to me a better than evens chance.

All my personal views of course. But if you haven't done so already, you may want to at least think about what impact a double-dip recession and a Euro collapse would have on your organisation, your supply chain and your procurement strategy if it does come to pass..

* For our younger readers...

 

First Voice

Discuss this:

Your email address will not be published. Required fields are marked *