As Global Supply Chains Grow, the World Economy Braces for Contraction

The global economy has never been more connected. Supply chains today reach across borders and around the world, connecting materials and products to suppliers and consumers in an unprecedented way. And although this concept of the global marketplace has brought plenty of positives with it, it also means that global participants share hardships as well. Nothing exemplifies this quite like the coronavirus pandemic.

COVID-19 has affected every country in its own unique way. In many cases, the effects of one country have rippled over to others — often via supply chains and trade relationships. The result is shaping up to be an unprecedented level of contraction for world markets.

Global contraction is imminent

According to the World Bank, the global economy will shrink by 5.2% in 2020 — the deepest recession in more than 80 years. The reason for this substantial pullback is obviously COVID-19, but many economists are quick to point out that the contraction is compounded by broad disruption to global supply chains.

Consider some of the world’s largest bilateral trading partners. The United States and China. Germany and the European Union. The United Kingdom and the United States. Italy and the European Union. These partnerships represent hundreds of millions (or billions) of goods that cross borders, imported and exported. Now, consider the most recent projects for the GDP contraction of these countries in 2020:

• The United Kingdom has already reverted to 2002 figures, contracting 20% this year.
• China’s economy shrunk for the first time in decades, forfeiting 6.8% so far.
• Germany’s GDP fell 2.2% in the first quarter and is expected to contract another 10%.
• Italy experienced a 9% contraction that could reach 13% in upcoming months.

The United States is right there, too, posting a GDP decline of 4.8% in the first quarter and expectations to nearly double that decline by the end of the year. It’s plain to see that economies around the world — particularly trade partners — have been battered.

Supply chain development efforts continue

Coronavirus’ dismantling of global supply chains has manufacturers seeking to rebuild them with smarter tactics and contingencies. The problem is, depressed economies have made it difficult. Trying to find an aluminum supplier outside of China is difficult when Russia and Canada are scrambling to buoy their domestic supply chains, for example.

Despite the headwinds, more complex, robust global supply chains might just be the key to rebuilding the global economy. Opening borders, facilitating trade, and stretching value streams across multiple countries all facilitate dollars and jobs, which contributes to growth. Manufacturers who take the time to diversify supply chains and forge new partnerships across the globe will be rewarded not only with more stable value streams, but healthier trade partners. As the old adage goes, “a rising tide lifts all boats.”

Rebuilding manufacturing supply chains won’t happen overnight and will only get more difficult as the global economy contracts further. Manufacturers need to seize opportunities for supply chain diversification and strengthen partnerships with suppliers and customers around the world. The opportunity is now.