2024 Economic Forecast
RedStone Resource
December 19, 2023
Inside This Edition
Supply Chain Pressures Index Surges in Early December
The New York Federal Reserve’s Global Supply Chain Pressures Index has surged since August at a historically fast pace. It is important to note that on a historical basis, the current reading is still showing a “balanced” global environment, but that could change given some of the events in the Red Sea and ongoing challenges in the Panama Canal.
Global Inventory Reset in Place?
Regional manufacturing surveys from November suggest that many manufacturers and their suppliers have gone through a successful destocking period, and new orders in 2024 will jumpstart the global supply chain.
Suez Canal Disruptions Reshaping Supply Chain Resiliency
The world’s largest maritime carriers have temporarily paused transits through the hotly contested region, especially in the chokepoint area at the mouth of the Red Sea near Bab El-Mandeb. In 2021 when the canal was blocked, the global economy lost $9 billion a day and it disrupted nearly 12% of all global trade.
ECONOMIC BRIEFING
2024 Economic Forecast
Economists joke that they have predicted 12 of the last 6 recessions, and the post-pandemic period has been a highly difficult period to predict. With that as a backdrop, the 2024 estimates are out, and they look more conservative going into the new year. The Conference Board offers a good snapshot of the forward look, and it calls for two soft quarters in the beginning of the year followed by moderate growth in Q3 and Q4. Contraction of 0.7% in Q1 is expected to be followed by a drop of 0.8% in Q2 to begin the year. This soft-landing scenario can easily be buoyed by a few sectors coming in hotter than expected, especially for Government spending, nonresidential construction, and any unexpected strength in consumer spending.
In the current year, 2023 is expected to finish with growth of 2.4% after a very strong Q3, bolstered by inventory building activity. For the full year, 2024 is expected to sneak by with growth of just 0.9% according to the Conference Board and 1.7% growth in 2025. Again, with two ongoing conflicts in the world, there is enough uncertainty that these figures are likely to be adjusted many times in the first half of the year.
Supply Chain Pressures Index Surges in Early December
The New York Federal Reserve’s Global Supply Chain Pressures Index has surged since August at a historically fast pace. It is important to note that on a historical basis, the current reading is still showing a “balanced” global environment, but that could change given some of the events in the Red Sea and ongoing challenges in the Panama Canal. The index has moved from an all-time low hit in May of this year of -1.57 to registering 0.11 (which shows supply chain disruptions on a global basis are ongoing). The index itself shows the standard deviation from a midpoint of zero (a balanced market); when the standard deviation is above zero it shows more disruption taking place than when it is below zero.
Some of the pressures showing up are indicative of a global supply chain that is starting to throw more complexity toward shippers. Events in the Middle East and ongoing conflict in the Black Sea continue to change global sourcing dynamics. Competition for key raw materials is starting to increase and government spending on defense goods is surging. The challenges in the Red Sea could be a fleeting moment, but a remedy to the situation is complex, and that might suggest that these problems will linger for some time.
TRANSPORTATION BRIEFING
Global Inventory Reset in Place?
The global supply chain has been hampered over the last 18 months by inventory overstocks. Many industries that were hamstrung in 2021 and 2022 and unable to get inventories had orders and backorders fulfilled rapidly in the second half of 2022, and the upstream portions of the supply chain stalled. Procurement of raw materials, labor inputs into assembly lines, and energy used to manufacture products were in low demand because of inventory overstocks. But regional manufacturing surveys from November suggest that many manufacturers and their suppliers have gone through a successful destocking period, and new orders in 2024 will jumpstart the global supply chain.
Many monthly manufacturing survey results showed that optimism for the first six months in 2024 was improving, and companies would begin to look at raw material staging strategies to understand how to prepare for a more active 2024 manufacturing sector. But of course, adding complexity to this outlook is the uncertainties that come with fluctuating global demand, the impact of conflict, multiple major presidential elections in developed nations, and pressures from higher interest rates which keep the cost of capital for carrying inventory overstocks higher. This is making decisions on demand planning and knowing how to stockpile certain resources is very difficult in this environment – and this is the next challenge confronting sourcing managers. But generally, a supply chain that is running lean will create activity further upstream than we have seen in the past 18 months, even with only moderate levels of customer demand and a sluggish economic environment. This inventory ‘reset’ concept is critical for the global economy, and the last thirty days have shown some positive momentum on that front.
Suez Canal Disruptions Reshaping Supply Chain Resiliency
The ongoing conflict in the Middle East has spilled over into the Red Sea and is affecting movement of goods through the Suez Canal. The world’s largest maritime carriers have temporarily paused transits through the hotly contested region, especially in the chokepoint area at the mouth of the Red Sea near Bab El-Mandeb. Attacks by rebels in the region continue to impact insurance coverage, risk safety of crews, and put assets at risk.
In 2021 when the canal was blocked, the global economy lost $9 billion a day and it disrupted nearly 12% of all global trade. The increased transit times required to avoid hot spots in the Red Sea near the Strait of Bab El-Mandeb could add between 14-21 days of additional transits depending on the origin and destination. This will affect European to Asian trade lanes primarily, but it could affect the global fleet. Estimates suggested that in 2021 when the canal was not used, nearly 10% of the capacity in the global fleet was taken out of the mix because freight remained “on water” longer. Ships are still transiting the canal for now (at the time of writing), so the full impact will not be as immense as it was when the canal was fully blocked. But this does create more volatility in the global supply chain, as is seen in several indexes.
