– Despite the short-term uncertainty associated with the changing mutations of the corona, Credit Suisse expects that growth this year will be three times higher than the long-term trend of 3%.
Where are we today?
Global industrial production (IP) has resumed almost to pre-epidemic levels. Although it remains below the long-term trend, but with a good chance of stabilizing again later this year.
Growth has been on a steady slowdown since June 2020, and there is a shortage of parts that make production difficult. The availability of semiconductors has disrupted automakers. Shipping prices and container supply are also issues that deal with significant global trade volumes. Many businesses report having difficulty purchasing components, leading to orders not being placed.
Price data reflects strong demand and weak supply for manufactured products. The base effects are expected to restart inflation indices in many countries this coming spring.
James Sweeney, chief economist at Credit Suisse Bank, said: “Our global commodity demand index – which is a weighted average of consumption and investment in non-services commodities – is supported by households in developed markets (DM). Real retail sales in DM have exceeded pre-epidemic levels since September 2020 and are now above the long-term trend. The demand for investment in global industrial production has also risen, but not as much as the demand related to consumption. The obligation now rests on business investments to further drive plant output. “
The dominant characteristic of the epidemic economy was the contrast between the demand for goods and the demand for services; The decline in demand for services was created due to the process of social distancing brought with it by the plague. Credit Suisse’s product demand index does not include services, but the consumption of services in DM economies is twice as large as the consumption of goods, and service-providing businesses contribute greatly to the demand for production through their investment expenses (computers, stoves, aircraft …). Thus, Credit Suisse anticipates that a rebound in services in 2021 will also be a rebound in global industrial production.
Where are we headed?
Forecasts regarding global industrial production are very positive despite the main uncertainty regarding mutations and vaccines. New varieties of the corona may lead to renewed closures in the US and Europe, and this is the main risk in the near term according to the forecasts of economists at Credit Suisse.
Herd immunity does not appear to be within the reach of major economies before the fall, but vaccines will reduce deaths and expected hospitalizations, leading to increased mobility. Home savings are expected to boost the recovery in services, which may begin before the summer.
The momentum of global industrial production (3 million annual growth) is expected to end in March 2021. The usual (non-epidemic) factors that have long predicted the growth of global industrial production are re-emerging; The most basic factor that is expected to lead to the momentum of global industrial production is a “reversal” from previous shocks. While December-February were shut down by closures, a shortage of parts and business investments made involuntarily by investors, the improvement from the harsh winter is expected to be a boost to global industrial production.
In conclusion, the main factors that can restart global industrial production are temporary investment and consumer spending on physical products. It is difficult to quantify the expected turnaround in 2021 in the face of much uncertainty, let alone the possibility of a re-spread of the plague that could delay renewed growth. However, Credit Suisse believes that the growth of global industrial production will be tripled from the normal annual trend of 3%.