Many economic forecasters have a certain number of “givens” in their economic projections, including the fact that the economies of Brazil, China, and India will remain stable….let’s take a look at some of these “given assumptions”….
As noted in earlier blogs, there is significant doubt about the challenges associated with economic growth in China. The housing crisis, as well as commercial real estate sectors, have no doubt grown beyond levels of sustainable demand, and there are cracks suggesting that a 9% YOY growth in GDP are unsustainable.
Meanwhile, Indian economic growth has been slowing (like in China) the government projections are being revised downwards routinely. Both Agriculture and Manufacturing sectors which are the backbones of this economy are growing at less than half the levels of previous year and this would certainly have an impact on domestic demand. Added to this the economy is reeling under high inflation rates for many months now making the Government to revise bank interest rates almost 13 times since March 2010 and the industry is the loser because of these factors. In fact this week, S&P has indicated that it may downgrade India’s investment-grade credit rating.
What about Japan? The Japanese economy has experienced a significant drop in current account surplus during 2011. This issue will drive the economy with further challenges with the requirement of serving an enormous public debt ( arising from natural calamities last year) but also facing increasing trade imbalances arising from strengthening Yen making the industry uncompetitive.
Throw in the political uncertainties of Brazil, the impact of the European economy if Germany and France throw in the towel, and you have a very big question mark relative to the assumptions underlying many of the global economic predictions out there. There are also significant risks to consider for the stability of the global supply base, given a huge drop in revenue. These are factors which sourcing teams should begin to think through as they go about their supply base planning for the coming year…