Uncertainty Ahead for Distributors Worldwide
From the big global players to niche specialists, electronics distributors are generally optimistic about 2017. Their reading of the usual metrics—GDP growth, interest rates, book-to-bill ratios, DTAM—all point to low single-digit revenue growth in the New Year. This is good news, considering the languid market conditions that have dominated the market since the Great Recession of 2008, the subsequent collapse of oil and commodity prices in 2014, and the reverberations in 2015 and 2016.
“I’m pretty bullish on 2017,” says Michael Knight, TTI’s senior vice president, Americas. “We have nice momentum and leading indicators are looking good. It won’t be a barn burner, but it’ll be a good year for the industry.”
Whether this broadly held optimism is justified and will herald sustainable growth for the next 12 months depends on two factors. The first is the growing uncertainty about global economic performance due in large part to rising populism around the world. The second, and related factor, is the impact this uncertainty will have on the pace of new technology adoption.
Managing Economic Uncertainty
Deriving the heightened economic uncertainty is the political challenge to government policies that for two decades have promoted globalization. In June, the UK surprised itself and the world by voting to leave the European Union. Five months later, the U.S. shocked the world again by electing Donald J. Trump as the 45th president of the United States.
Both have impacted global stock markets and exchange rates and have called into question expectations about government policies, trade agreements, inflation, and global economic growth. Indeed, economists are busy revising their economic forecasts for 2017 and beyond.
How much of an economic impact a Trump administration will have on U.S. and global economic performance is a moving target. It depends on whether the new administration pursues protectionist policies espoused during the campaign or more pragmatic, pro-growth policies. If the latter—which, as of the beginning of December, is what many economists expect—then U.S. economic growth, inflation and interest rates are all expected to rise, which economists believe will benefit most economies. One of Trump’s most important pro-growth policies is a commitment to increase government spending on infrastructure programs.
Independently, global commodity prices of ferrous and non-ferrous metals have been on the rise, which are expected to contribute to inflationary pressure. The price hikes are caused by the cyclical nature of commodity prices but more recently have been in response to the expectation of higher infrastructure spending in the U.S., some economists suggest.
With inflationary pressures mounting, the U.S. Federal Reserve Bank is likely to hike interest rates in mid-December. Pundits expect the Fed to accelerate the pace of rate hikes through 2017 to prevent the US economy from overheating.
According to IHS Economics’ November Global Executive Summary newsletter, world GDP growth is projected to be 2.8% in 2017, a healthy increase from 2.4% in 2016. IHS Economics forecasts US growth to be between 2.0% and 2.5% in 2017, up from 1.5% in 2016.
World GDP growth is projected to be 2.8% in 2017, a healthy increase from 2.4% in 2016. IHS Economics forecasts US growth to be between 2.0% and 2.5% in 2017, up from 1.5% in 2016.
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