The global economic outlook – we interview D & B’s UK chief economist (part 2)

We are featuring D&B’s Global Economic Outlook to 2018 - 2013 Year-End Update and I caught up with Warwick Knowles, D and B's chief UK economist to talk further about some of the key findings. We published part 1 of our discussion yesterday – here is part 2.

We talked about the economic issues yesterday and particularly the threats to the economies of emerging markets, and what that might mean for procurement people. What about supply chain risks related to political or social problems - your report is interesting in that area too?

The economic issues tend to bring out underlying problems in countries where there are big divides in the political system – as we are seeing in Ukraine and Thailand, with current quite serious political unrest.  In our report we differentiate between short-term risk and longer term risk. That tends to be greater in countries with poor infrastructure and education, for instance, which can drive those political divides. So for instance, whilst there are concerns about Turkey in the short term (see part 1), the outlook for that country is not too bad in the longer term.

So are there countries where the outlook is maybe not so bad in the short term but riskier in the longer term?

Yes - our rating of countries such as Indonesia and Columbia in the longer term may look surprisingly low, in terms of their need for supply-side restructuring. Other countries such as Nigeria and Angola look weak which won’t be as much of a surprise.

So are you trying to predict revolutions and major problems? That sounds impressive!

However much we crunch the data we can't and don't pretend we can predict everything! We have found that it is particularly difficult to predict exactly where and when social tensions spill over into more dramatic problems.

We’ve talked about risks in these developing countries  – but how do you summarise your general outlook for western economies, given the concerns in emerging markets?

The USA is probably big enough to look after itself. Europe is more vulnerable, as many countries still aren’t out of the recession. So there is more chance of contagion from the emerging markets in Europe. It will also be interesting to see what the politicians do about the current issues. Will they bring in capital controls or raise formal barriers to imports? Or we might see competitive currency devaluations. Now  these factors can look helpful in the short term, but can have a knock-on effect in terms of wider trade issues and turmoil and would certainly bring western economies into the wider picture.

All in all, there is no doubt the current situation is a test of the global recovery. Basically, the USA has been keeping its currency low by printing money. So as that unwinds, we see an increased possibility of central banks getting something very wrong .

One thing that confuses me is inflation. Some commentators see it as a real risk but others have  concerns about deflation - certainly in continental Europe, as we saw in Japan for much of the last decade. Where do you stand on that?  

Many economists still believe that the quantitative easing process must lead eventually to some future inflation in the system –that it is currently ‘stored up’ as it were. But economists haven't been very good always at predicting these things.

Any final advice for procurement and supply chain executives?

You need to look carefully at what is going on and differentiate between the outlook in specific countries and markets – even within countries, different industries will perform very differently. So the tourism industry in Turkey looks very promising given the currency decline, but other industries may have problems.

We're moving into a period where the picture is ‘conflicted and confused’ as we say, so the best advice for procurement is to monitor the economic situation and key suppliers closely. And as always things can change so quickly. One final point - politics is becoming more populist around the world, which adds another potential layer of uncertainty and potential for rapid change.

Many thanks to Dun & Bradstreet and Warwick Knowles - the report can be downloaded here and is well worth reading.

 

 

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