Logistics outlook

Twists and turns: 2017 logistics mood, outlook, and forecast

Impacts of fast-moving global developments on the 2017 outlook for Europe. And logistics in particular. Get the latest forecast and more.

Right on the money in 2016

In the last few days, we’ve been working on the final chapters of the Logistics Report 2017 in the panel of logistics experts known as “Logistikweisen” in Germany. This new report is scheduled to be handed over to Dorothee Baerr at the end of March. Baerr is the Parliamentary State Secretary at the Federal Ministry of Transport and Digital Infrastructure and the Coordinator of the Federal Government for Freight Transport and Logistics. She’s also the patron of our council.

The annual report delivers a prognosis for the economic development of the logistics sector in the coming year – I’ve duly reported about last year’s findings. This sector forecast generally aims to:

  1. Strengthen the discussion about the substantial economic contribution of logistics
  2. Deliver a picture of the future of logistics to decision-makers in economy and politics
  3. Raise awareness in the wider public for the potential, capacity, and performance of logistics

For 2016, the panel had forecast a growth of +2.0% in the economic sector logistics. There isn’t sufficient data available at this point to confirm this, but: current projections point towards this figure exactly.

Logistics forecasts 2017

For 2017, the forecast turned out slightly more pessimistic with a projected growth of +1.9%. This year’s report was developed during the Summit of Logistics in September 2016, for publication at the Annual International Supply Chain Conference in Berlin last October. To this end, a number of assumptions were made in the following areas:

  1. Technology developments
  2. New business models
  3. Skilled labor shortage
  4. Political uncertainty and global hot spots
  5. Progress of globalization
  6. General economic framework conditions

Looking back at September now seems ages ago. And we have to admit that we did not anticipate the terrific speed and explosive nature of some of the developments in recent months. This refers particularly to changing political framework conditions.

So just before the publication of the 2017 forecast, I keep on wondering whether we actually have clear indications for an even more gloomy outlook at this point.

Facts and forecasts today

Over the last few weeks, did you also find yourself – even ever so slightly – being irritated that a change of government and the attitude of a single man can dominate media headlines and coverage on such an unprecedented scale? Admittedly, I’m even catching myself looking for faux pas and taboo-breaking of “the most powerful man on earth”. And I’m wondering:

What will be the lasting effect of the undermining of constitutionality and democracy on our prevailing system of cultural values? 

In our media age, to what extent can alternative facts be used to control and manipulate people? Is it a phenomenon of increasing complexity and a result of information overflow when essential standards like objectivity and truth are stretched and blurred further and further?

Swiss Physicist and Philosopher Eduard Kaeser published an interesting article about this topic. It’s without doubt an unprecedented situation. Making any prognoses on such grounds is an almost impossible task – especially with a view on economic impacts. Without precedent cases, even professional analysts resort to constructing outlooks based on classic “if-then” scenarios.

With regards to the Trump Administration and what to expect, Nate Silver offers a number of options in his article “14 Versions Of Trump’s Presidency, From #MAGA To Impeachment”. Silver is a popular American writer and statistician specializing in elections.

EU 2017: a lost political case?

Back to the outlook for Europe. There is much to focus on with many hot topics and current challenges at hand. Also here, protectionism and nationalistic tendencies are on the rise in a number of countries.

Upcoming elections in the Netherlands (March), France (May), and Germany (September) might already bring about a change of course. And just to add as a side note: there is also a high risk for new elections in Italy and Spain.

The continuously postponed decision on Greece, many unresolved issues about the refugee crisis,  and the alarming development in Turkey further fuel the challenges.

If you also factor upcoming negotiations following Brexit into the equation, one thing becomes clear: we’re navigating through choppy waters and inspiring – or even sound – new impulses from the realm of politics don’t seem likely this year.

It’s rather impossible to gauge which major disruptions may lie ahead of us as a result of events leading up to elections and the actual, upcoming results. But generally speaking, 2017 is a lost case for Europe anyway – from a political perspective.

2017 outlook reloaded: but…

Can we already derive enough from all of this to readjust our forecast? Early last week, the Federal Office of Statistics released the 4th quarter numbers for the 2016 gross domestic product in Germany. With a GDP increase of 0.4% compared with the previous quarter, the German economy continued on its path of moderate growth at the end of last year.

This GDP is based on positive, domestic impulses. But also foreign economics were at solid levels in the last quarter – November even recorded record values on exports with 108.5 billion euros. So the German economy kicks off on upswing in 2017 and many economists expect this trend to continue – for now.

In its annual report 2016/2017, the German Council of Economic Experts assumes continued, moderate growth in 2017 – both for the Eurozone and Germany itself. This assessment, however, was developed prior to the US presidential election. It even includes a clear reference indicating the high uncertainty of the forecast in light of unexpected changes in foreign trade environments.

The EU Commission shares this view in their Winter 2017 Economic Forecast released on February 13. It even explicitly lists the aforementioned political risks. But at the same time, the EU also emphasizes the resilience of the European economy – against all odds and disruptions – in recent months.

Keeping an eye on the money

In my view, the extremely relaxed monetary policies of the European Central Bank must be taken into account, too. With gradually rising levels of inflation looming, this approach cannot continue in the long run.

For 2017, however, this won’t play much of a role: it will be market expectations towards the rising US dollar and tax cuts in the US that will shape stable growth in emerging market countries.

Ironically, it’s Trump himself who’s currently strengthening the US currency with his “Make America Great Again” credo. Since the election, the euro fell 5% compared with the US dollar.

Going ahead with announced measures like investments, tax cuts, and a deregulation of the banking sector will most likely go hand in hand with a further strengthened US dollar.

In turn, this would result in positive developments of exports to the US – provided, of course, this is not accompanied by trade barriers and customs duties. This view is confirmed by exchange rate trends in the German stock index: in the past two months, the index rose about 10% – already reflecting positive expectations for 2017.

And the sun rises in the east?

And what impulses can we expect from Asia in 2017 – in particular from China? Towards the end of the year 2016, there were further indications of a downturn in the world’s second largest economy – raising a red flag for export-oriented European businesses. But surprisingly, local exports then rose by 7.9% in January, significantly increasing prices at Asian stock exchanges.

On the one hand, political reform deadlocks, debts of state-owned businesses, and ever increasing regulatory requirements barely leave any room for growth phantasies. But on the other hand, China has been following its strategic goals consistently and visionary for a long time – take a look at my colleague Mark’s recent blog post “China on track to global trade dominance”.

And we shouldn’t be surprised to hear more clear statements by leading Chinese officials at the moment. For example, against protectionism and for further opening up the country – take a look at the article “China’s response to a world with Trump” on WeltN24 (in German only).  My colleague Uli also concludes in his recent analysis that Asia represents an attractive option to shift the focus to in the midst of current turmoil – see “Trump: the end of Ricardo and Smith?

Latest local outlook for logistics

Last but not least, back to the German economy and what it all means for the logistics sector outlook. Sentiment among German managers improved – that’s the finding of the monthly Ifo Business Climate Index that was released on February 22. The overall index rose about 1 point compared with the previous month, there’s optimism about the economy being on track, and the manufacturing sector notes a rising index, too.

On the logistics side, BVL, the Federal Association of Supply Chain Management and Logistics in Germany, has published an annual logistics indicator in collaboration with the Kiel Institute for the Global Economy for years now. The indicator is based on data from quarterly polls of 200 decision makers. This includes 100 managers from the most important logistics service providers and 100 top executives from industry customers of logistics services. 

At the turn of the year, based on this indicator, the economic upwards trend has reached its highest value in more than five years. So despite all detailed challenges, there is a sense of optimism and high spirits in the logistics sector. President and Chairman of BVL, Prof. Dr.-Ing. Raimund Klinkner, said the following about the most recent poll results: “The overall upwards trend gains a notable 7%. Both sides of the market are confidently looking forward to the year – their optimism driven by excellent assessments of the current situation and a resilient approach to realistic expectations.”

Also here, we can find a focus on the momentum – the economic upswing that brought us into early 2017. Optimism prevails despite all risks and justified reservations. I’m following this tendency in my conclusion on the forecasts at hand: no changes – continue pursuing the current course, and always: be vigilant!

Looking ahead, keeping the spirits up

The German economy has thus far proven very resilient in recent years despite various crises. This generally fed and strengthened an overall positive mood. Already 50 years back, Ludwig Erhard, the former German Chancellor who led the country through the “Wirtschaftswunder” (German for “economic miracle”) emphasized the following: everything happening in an economy, be it investments or consumption, will always be influenced by psychological factors.

So, emerging from this winded path to derive and confirm 2017 prognoses – the most likely scenario for this year remains continued, moderate growth. With slight chances of rain: upcoming events in 2017 are likely to bring about some gloom. But for now, this can’t bring us down – don’t jinx it though. With this in mind, we can already look forward to an even more challenging forecast for 2018…

What’s your view on this, and what course is your business on to navigate successfully through these challenging global market environments? I look forward to your comments on LinkedIn.

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