NFPA’s annual International Economic Outlook Conference, held in suburban Chicago this week, provided an overview of the current economic landscape, exploring both U.S. and global macro trends and the ramifications for fluid power manufacturers. Here’s a breakdown of some of the main ideas from this week’s event:
- U.S. dominance: With a quarter of the global GDP, the U.S. remains the world’s largest economy. Reshoring and onshoring trends have further catapulted the U.S. to become the second largest manufacturing country.
- China is stagnating: China, once an epicenter for double-digit growth, is facing some unprecedented challenges. Population decline and companies departing its shores hint at tough times for the Asian superpower.
- Concern about the 2030s: A decrease in population and unfavorable demographic trends in many developed nations will invariably lead to a decrease in demand, setting the stage for a depression-like recession in the 2030s.
- Supply chain moderation: Supply chain pressures, a notable concern for manufacturers, appear to be stabilizing, setting the stage for an economic comeback.
- Tight labor markets: The aging U.S. demographic, combined with diminishing immigration, signifies a labor crunch. For companies, the challenge will be attracting and training the workforce, while nurturing the next generation of leadership.
- Financial forecasts: Despite inflation waning and an expectation that the Fed will halt interest rate hikes soon, concerns about regional banking instabilities remain. On the brighter side, 2025 promises opportunities for organic growth for businesses that strategically invest in the next couple of years.
Looking at global manufacturing
Sean Metcalfe of Oxford Economics highlighted some key drivers in global manufacturing:
- Inflation and demand: High inflation rates, combined with squeezed household budgets, are redirecting consumer demand from goods to services.
- Renewables: By 2050, renewables will constitute a whopping 65% of the global power mix, marking a significant shift in global energy production.
- Emission targets: Despite the rise of renewables, achieving net-zero emissions by 2050 appears unlikely, hinting at a potential 2° C global warming.
And Taylor St. Germain of ITR Economics had some intriguing thoughts that manufacturers need to keep in mind moving forward:
- Fluid power manufacturers must leverage the current reshoring trend. Key industries like semiconductors and electric vehicles are experiencing significant growth.
- Despite global energy transitions, oil and natural gas remain profitable ventures, especially for fluid power manufacturers. The semiconductor shortage, exacerbated by the pandemic, calls for renewed focus.
- With China’s diminishing economic dominance, countries like India, Vietnam, and Malaysia may be emerging as growing manufacturing hubs.
The road ahead
Jim Meil’s forecast paints a picture of an economy that’s okay but not great. The good news? He feels we are not headed for a recession for multiple reasons: the jobs market supported solid consumer spending, energy prices fell from 2022 peak levels, businesses and households could cope with higher interest rates, and the Russia-Ukraine war settled into a relative stalemate. In addition, manufacturing did not have any sort of cliff-event spiral-down, the regional banking “crisis” was contained with quick fixes, asset prices held up, housing prices mostly rose, and while stocks strayed into bear levels, they have rebounded.
According to Meil, the fluid power industry, despite showing some signs of weakness, is poised for a positive turnaround by the end of 2023 and into 2024.
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