Sarah Hunter of Oxford Economics painted a less-than-rosy picture at the recent NFPA Annual Conference in San Antonio, Texas. Here’s a recap of some of what she shared with the audience of fluid power manufacturers, distributors and users.
• Growth in the global economy has been barely greater than 2%, which is the slowest growth since 2009, when we had “an outright contraction.” Much of this, she feels, is due to financial stress from the system. And things are not going well in Japan, Europe, Brazil and Russia.
• On the positive side, households are enjoying the low oil prices. Spending is up for households, which will support growth and become a key positive driver again. Property prices are still going up and new houses are being built. Hunter said that if we see a decline in construction or property prices, we could go from an “amber alert” to a “red alert” status for the economy as a whole.
• Quite a few developed economies are already experimenting with what are deemed negative interest rates or negative policy rates. That seems to be the new circuit breaker, and the question is: will that work?
• For the U.S., Hunter’s firm is calling it “a muffled whistle,” which she said means a weak end to 2015 and a not exactly positive start to 2016. Growth in Q4 of 2015 was very weak, less than 1% per annum on an annualized basis. For Q1 of 2016 they hopefully see things squeaking up towards 2%, but there are downside risks, too, so it likely will be below that number.
• The headwinds for the U.S. are predominantly external, and from two main places. One is weaker global growth; there’s slow growth in China, which makes the news a lot, but it’s a widespread phenomenon. Other emerging markets are struggling, as well. The second is that the U.S. is also having to battle the strengthening of the dollar. The dollar is strengthening againstt pretty much every currency over the last year or so, and has moved by quite a lot in some cases. That is a challenge, because it makes us more expensive compared to everyone else producing elsewhere in the world. This is particularly felt in industry and manufacturing.
• When you dig into the data, only 26% of the manufacturing sector is actually contracting at the moment. The problem is those areas are contracting by a lot and they’re able to pull down the average. It’s not a downturn like it was in 2009, where it was wholesale—everyone was struggling. It’s very targeted at the moment. Because of that, Hunter’s firm doesn’t expect to see a recession across the whole economy.
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