SUMMARY. The global economy, especially within the Engine, OEM and Components industries, has felt the immediate impact from COVID: assembly line shutdowns, labor issues, supply chain issues, logistics and transportation to name a few. The pandemic has exposed many weak links in the global economic chain. However, by end of summer, most of these challenges were either completely resolved or temporary solutions had been put in place.
Diversification has become the theme during the pandemic recovery, and we expect this trend to continue. Not only are companies looking for new markets and suppliers to grow top and bottom line revenue as well as to minimize risks, but we see a shift into new industries. Furthermore, rapid developments of new technologies create massive opportunities for OEMs and suppliers as well as posing real threats to OEMs that solely rely on traditional products that are powered by fossil fuels.
According to a report from the Organization for Economic Development (OECD), the global economy is still expected to shrink this year, but by less than previously estimated. Currently, the OECD expects the world economy to decline by 4.5% in 2020, which is better than the earlier estimated contraction of 6%; this is mainly driven by better-than-expected recoveries in the U.S. and China.
This is the election year in the US and the world will be closely watching the outcomes in November. Typically, we see a lot of uncertainty during the last few quarters before the election, as it will have an impact on the global economy. Companies preserve cash and postpone major capital investments until they understand the playing field and rules of new administration; current geo-political trends related to trade disagreements and the exposed supply chain weaknesses and challenges brought to us by the pandemic- both have a direct impact on the recovery trends and future growth.
When we look at industry developments during first three quarters of 2020, it is clear that every market segment globally was negatively impacted by the pandemic. The only exception is China’s Construction segment, which is primarily driven by stable demand supported by government investments.
Among all industry segments on the global scale, the On-Highway segments such as Passenger Cars, Minivan/SUVs and Commercial Vehicles segments have suffered the greatest decline, dropping 16-25%. This is mainly due to production peaking over the past couple of years; these sectors were due for a slowdown, regardless.
Consumer oriented applications will suffer most, mainly due to a lack of demand caused by business shutdowns, unemployment, and short-term elimination of financial wealth. The overall decline in these markets will be well into double digits with some suffering 25-40%, regionally. Globally, personal transportation sectors such as Passenger Cars and Minivan/SUVs will suffer close to a 20-25% decline in 2020. On the other hand, heavy industrial segments, such as Agricultural Equipment and Power Generation will be down in high single digits.
These are our current estimates as of today; going forward and depending on the segment we do expect these numbers to change in both directions.
On the positive side, following a rapid deterioration of production levels in 2020, we expect demand and production to increase across the board in 2021, averaging 5.18% among all market segments, which is higher by 0.3% than our forecast from previous quarter and by 1.6% vs Q1 2020 estimates. At this point, we believe it will take 2-3 years for the general economy to come back to pre-COVID levels and for some segments it will be even longer than that.
AGRICULTURAL. Given the current circumstances globally, we expect 2020 to finish in negative territory. Our latest estimates of production volumes show a decline of 7.9% in 2020 vs 2019, which is an improvement from last quarter by 1.5%. China is the largest producer of Ag equipment globally, but most of the volume falls under the 2-wheel drive tractors application. Over the past few years this product category has been shrinking significantly, mainly due to the product replacement by larger HP machines.
Globally, we do not expect any rapid recovery next year (2021) or high growth, mainly due to current economic conditions. We expect 2021 growth will be at 2.7% globally, which is slightly higher (by 1.7%) than our estimates as of last quarter and 3% higher than estimates from Q1 2020. Such trend shows better than expected recovery and we believe Ag machinery segment is nicely positioned for stronger recover and steady future growth.
China will contribute most to the decline in overall global performance at -2.8% in 2021 (mainly driven by the decline in smaller equipment and the shift to larger HP machines); at the same time, Europe, Central/South America and India will show much stronger recovery at 9%, 11 % and 11.9% respectively. We certainly see a steady recovery patten, however the key factor to agricultural machinery growth will depend on overall speed of economic recovery from the pandemic.
CONSTRUCTION. The global Construction sector has performed very well for the past five years, posting an overall growth rate of 9.6% in 2018 and 1.9% in 2019 globally. The latest crisis has eliminated this growth trend. At this time, we estimate the global construction equipment market will drop 9.3% in 2020 vs 2019. This rate is higher by 2% vs. previous quarter estimates.
At the same time, we expect a recovery and growth at 7.1% in 2021 vs 2020, which is higher by 0.7% then previous estimates. The recovery pattern certainly seems to be improving in comparison to estimates just six months ago. However, the markets will not recover to pre-crisis levels for another few years, at best. India, Europe and South/Central America will contribute the most to the recovery in terms of growth in 2021 vs 2020, at +32%, 8.9% and +8.4% respectively.
Other Off-Highway segments, such as Industrial, Lawn and Garden and Power Generation, will closely follow the latest global economic conditions. Currently, we expect them to decline in 2020 vs 2019 at -10.6%, -13.9% and -7.8%, respectively. The recovery in the following year will take place at rather slow rate. We estimate that 2021 growth vs 2020 in these segments will be +6.7%, +4.4% and 0.1% respectively.
Marine Auxiliary and Maine Propulsion sectors will finish the year with -11.3% and -12.2%, respectively. Cumulatively, most decline will take place in India (-23.7%), North America (-15.1%) and Far East (-12.4%). Promising recovery at this point is expected in 2021 at an overall rate of 5.8% vs 2020. This is an improvement by 1.5% from the previous estimates in Q2 2020.
For the On-Highway sectors, we will see a decline in production volumes across all product classifications. Cumulatively, across all on-highway sectors the overall decline will be at -21.6% in 2020 vs 2019. This is an improvement by 1.8% from the previous estimates in Q2 2020.
Passenger Cars will suffer the largest decline among consumer-oriented applications, as demand rapidly collapsed with the progression of the virus crisis. We estimate that globally passenger car production will decline 25.6%, with India, North America and South/Central America contributing the most to the decline rate at -28%, -32.6% and -43.7%, respectively. We estimate a small recovery within the segment at 5.4% in 2021 vs 2020, where Central/South America, South East Asia and India are estimated to grow faster than other regions at 39.7%, 15.9% and 15.3%, respectively.
Minivan/SUVs will go in line with the Passenger Cars segment. Overall decline will be 19.2% in 2020 vs 2019; where India, Eurasia and Central/South America are leading in the decline at -22.4%, -34% and 20.9% respectively. The small recovery in 2021 will also be in line with the passenger car segment at +5.2% vs 2020. Regionally Central/South America, India and South East Asia will be growing faster than other regions at 44.3%, 15.3% and 15.9%, respectively.
Light Commercial Vehicles will decline 15.6% in 2020 vs 2019 globally. Significant declines will take place in India, North America and Central/South America at -45.3%, –25.4% and -31.%, respectively. Small recovery is expected in the following year (2021) at 5.6% overall globally. Regions with higher recovery rates will be India, Eurasia, and Central/South America, which are expected to post gains of 44.3%, 13.9% and 21.4%, respectively.
During the past few quarters, we have forecasted that demand and production of Medium and Heavy Vehicles were expected toslow downin 2020-2021. Peak production volumes in previous years as well as COVID-19 impact will have a profound impact on the segment, which is forecast to suffer most among all sectors we track in our databases.
At the same time, the MHV segment has made most improvements in the forecast for 2020 and has shown faster progression in the recovery estimates from previous quarters. Currently, we expect production volumes in 2020 to be down at -15.9% globally. Most regions will experience double digits decline, with North America, Europe, India and Far East declining at 39.1%, 32.8%, 61.9% and 28.4%, respectively. We do expect modest recovery in 2021 at 5.4% overall vs 2020. Regionally, the growth rates in India, Central/South America and North America are expected to be 40.3%, 23.7% and 16.1%, respectively.
Recreational Products follows consumer-oriented segments, but globally the decline overall will not be as significant is in the Passenger Car and Minivan SUVs segments. Currently, we expect the decline in 2020 to be at -12.1% vs 2019. The key factors to better performance in Recreation products are affordable personal transportation (motorcycles) and significant demand for RV, driven by the pandemic and the travel restrictions.
Most of the volume (2-wheelers) is concentrated in China, and as of now we do not forecast any major decline there for the current year. Other regions, such as India, Europe and North America will decline at rates of -23%, -33.8% and 20.1%, respectively. The recovery in 2021 is expected to be 5.8% globally, where India and South/Central America are leading the growth at 11.1% and 6.1%, respectively. PSR
Yosyf Sheremeta, PhD, is Director of Product Management and Customer Experience at Power Systems Research.
