Yosyf Sheremeta, PhD, Director of Product Management and Customer Experience, analyzes the Global economic outlook by region and industry segment.
Transcript
Welcome to the PSR PowerTALK podcast, produced by Power Systems Research.
00:06 Joe Delmont
From Power Systems Research I’m Joe Delmont, an editor of PSR PowerTALK.
Today we’ll talk with Yosyf Sheremeta about his global economic outlook. Yosyf is Director of Product Management and Customer Experience for Power Systems Research.
Bottom line, Yosyf, what do you see for the global economy?
00:29 Yosyf Sheremeta
Good morning Joe.
We saw a strong economic recovery globally in the first half of this year. However, many challenges still remain. The rebound will continue to vary widely among different regions and countries, but the complete recovery is not likely until the global pandemic is under control.
00:50 Joe Delmont
Yosyf, describe the impact of COVID on the major economies. How is that affecting the economies now after a year or more?
00:59 Yosyf Sheremeta
The key factors we have looked at are the vaccine rollout, then fiscal policies board, public health management, and, finally, the size of hard-hit sectors in the different economies. These largely explain variations in the performance across countries.
01:16 Joe Delmont
Obviously, vaccine availability is a key. What do you see here?
01:22 Yosyf Sheremeta
Vaccine rollout globally, although uneven, is finally gaining momentum across the globe.
01:29 Joe Delmont
Is there sufficient support from most governments to overcome the negative factors of COVID?
01:38 Yosyf Sheremeta
Support from governments in the US and Europe provided a major boost to economic activities in the first half of 2021, and we do expect these activities to be accelerated in the second half of 2021. With government support, demand for products and services globally is coming back and we actually expect this trend to significantly increase during the rest of 2021.
02:03 Joe Delmont
Can you give us a forecast on specific economies and when they will recover?
02:12 Yosyf Sheremeta
This is quite difficult to predict. The contraction in overall performance and employment levels has been universal, but how, when, and if countries will rebound remains unclear.
According to the report from Organization of Economic Development, global GDP growth is now expected to be at 5.8% this year; and upward revision of 0.2% since April of 2021 and about 1.3 percentage gain more than December OECD economic outlook reading. Overall global output is expected to reach pre pandemic levels in the second half of 2021. However, much will depend on the race between the vaccine and the emerging variants of the virus.
03:01 Joe Delmont
Talk to us about a global inflation. Is that becoming a problem?
03:07 Yosyf Sheremeta
Well, we believe that global inflation should remain broadly stable during 2021. While price pressure in developed economies, US and Europe, should intensify as the economic activity recovers — we’ve already started to see this trend here in the States — inflation concerns in the developing markets have been declining mainly due to the stabilizing currencies and reduce supply side pressure.
03:34 Joe Delmont
What kind of inflation trends do you see?
03:38 Yosyf Sheremeta
In 2020, global inflation levels were at 1.9% and we project this level to increase about 2% in 2021 and 2022. Consumers have been spending less on services and more on goods since the pandemic began.
03:57 Joe Delmont
Let’s talk about some specific segments.
04:00 Yosyf Sheremeta
While on-highway segments, such as passenger cars, and minivans, SUVs, are expected to rebound at roughly 4 to 6% globally in 2021. This rate is significantly improved from our last quarter projections, despite declines in China.
Commercial vehicle segment globally will be about 3.6% in 2021 versus 2020.
Consumer related applications are positioned to match general economic recoveries.
Heavy industrial segments, such as ag equipment and power gen, which experience a more moderate decline in 2020, are expected to add between 2 and 4% globally.
04:42 Joe Delmont
How long do you think it’ll take for global economies to return to pre pandemic levels?
04:49 Yosyf Sheremeta
We believe it will take about three years for the overall global economy to come back to pre COVID levels and for some segments it will even be longer than that.
04:59 Joe Delmont
Yosyf, can you briefly discuss some key individual segments? For example, what do you see in agricultural?
05:07 Yosyf Sheremeta
In comparison to all other industries, the agricultural machinery segment performed well during the pandemic. While the pandemic halted the growth acceleration in 2020, the decline was about 5.6% globally, which turned out to be the best performance among all sectors that we track. However, the sector is well positioned to gain solid traction in 2021 and start a new growth cycle for the next few years.
05:37 Joe Delmont
That’s encouraging. What kind of growth you see in ag this year?
05:41 Yosyf Sheremeta
We do not expect rapid growth to take place, to take place in ag in 2021. We estimate the industry will add about 2.7% globally.
The overall slower growth in the number of units is driven mainly by the transition to larger type of equipment and machines specifically in China.
06:03 Joe Delmont
Do you see any regions outperforming the group in this transition?
06:09 Yosyf Sheremeta
Yes. We think Central America and Brazil specifically will contribute most of the growth and in overall global performance, which will be at 15.8% this year. (The) Indian subcontinent will be next at 12.3, followed by Europe at 9.3 and North America at 8.9 percent growth. We see a steady recovery pattern and the key factor to the agricultural machinery growth will depend on the overall speed of economic recovery from the pandemic.
The one exception is in China, which will show a slow decline in ag equipment sector at minus 3% in 2021. As we mentioned it already, this is mainly driven by declines in smaller equipment applications. Specifically, two wheeled tractors which are being replaced by larger units.
07:04 Joe Delmont
Construction is another major segment followed by Power Systems Research. What do you see for this segment?
07:12 Yosyf Sheremeta
Global construction market sector declined at 6.2% last year but is well positioned for rebound in 2021. We expect the global construction equipment market to grow at 6.8% in 2021. However, the production volume at the end of 2021 will not reach the pre pandemic levels we saw at the end of 2019.
We do not expect full recovery in machines and equipment production volume units until 2022-2023. India should be up to almost 40% over 2020, Europe at 8.8%, and South-Central America 10.1%.
07:57 Joe Delmont
What about other off-road segments?
07:59 Yosyf Sheremeta
We do expect other segments, such as industrial, lawn and garden, power generation sectors to follow the general recovery trend.
We estimate that growth in 2021 versus 2020 in these segments will be 9% for industrial, 5.2% for lawn and garden, and we expect the power generation to be about flat.
Among all market segments that we track, power generation segment will, has weathered the pandemic with least declines, mainly due to the strong demand from the data centers and healthcare infrastructure.
08:34 Joe Delmont
How about, uh, on-highway? What do you see for those segments?
08:39 Yosyf Sheremeta
For the on-highway sectors in 2020 we saw a declined production volumes across all product classifications cumulatively across all on-highway sectors. The overall decline was about 17.9% in 2020 versus 2019. Passenger cars segments contributes almost 40% of the volume to overall on-highway vehicles. We estimate a slight recovery in 2021 at 3.3% globally.
09:09 Joe Delmont
The passenger car segment has been weakening. Is this situation going to improve?
09:16 Yosyf Sheremeta
Passenger cars suffered the largest decline among consumer-oriented applications as demand rapidly collapsed with progression of the virus crisis. Globally, passenger car production declined 24%, with India, Europe, North America, and South-Central America contributing the most of the decline. India was down 29%, Europe down 30.7%, in North America — 25%, South-Central America at 38.5%.
09:50 Joe Delmont
Do you see any recovery here in the next year?
09:53 Yosyf Sheremeta
Yes, we estimate the small recovery within the segment at 2.9% overall in 2021 versus 2020. We think Central and South America will lead the way at 24.5%, followed by India at 11%. Going forward we will continue to see trend towards SUVs, which will further hurt the growth in the passenger cars market.
10:17 Joe Delmont
While talking about that segment, what do you see? For minivans and SUVs.
10:22 Yosyf Sheremeta
A minivan/SUVs sector will perform in line with the passenger segment at 3.72% growth, in 2021 versus 2020, and will continue to benefit from the changes in the consumer preferences moving from passenger cars to smaller SUVs.
The overall decline in 2020 in the minivan/SUV sector was at 14%. A small recovery in 2021 is expected and will be in line with the passenger car segment globally at 3.72%.
Regionally, central South America will lead the way at 32.3%, followed by India at 21.4%. North America will be at about 8.8%.
11:08 Joe Delmont
Light commercial vehicles, what do you see there?
11:12 Yosyf Sheremeta
This sector declined 10.9% in 2020 versus 2019 globally but is expected to gain about 7.5% in 2021 versus 2020.
11:22 Joe Delmont
The last segment we’ll consider today is recreational products, such as motorcycles and scooters. What’s your outlook for this segment?
11:32 Yosyf Sheremeta
Rec products follows consumer-oriented segments, but globally the decline was not as significant as it was in the passenger cars and minivans segments.
Globally, we saw an overall decline last year in the production of recreational vehicles at 11.4%. Currently, we expect the segment to add about 8.8% globally in 2021 versus 2020.
The key factors to better performance in rec products are affordable personal transportation — specifically motorcycles, and significant demand for recreational vehicles driven by the pandemic lockdowns and travel restrictions.
12:12 Joe Delmont
What do you see on a regional basis?
12:14 Yosyf Sheremeta
Regionally, we expect the growth leaders in 2021 to be India at 22.1% North America at 9.1% and Central/South America at 9.8% over 2020.
12:28 Joe Delmont
So Yosyf, let’s summarize what you’ve been telling us today.
12:33 Yosyf Sheremeta
Sure. To briefly summarize the global industrial outlook for 2021, it is clear that every market segment globally is set to show recovery and positive growth in 2021 versus 2020. Following the rapid deterioration of production levels last year, we expect global demand for production to increase across the board in 2021 versus 2020. The average gain should be about 7.4% among all market segments.
This is significantly higher, by almost 2%, than the previous projections from the first quarter of 2021, when it was at 5.6%. This trend is driven by a stronger economic recovery trend that is set to continue this year. Currently, we expect the growth will continue to pick up in the second half of 2021.
The only exception (is) in China medium Heavy Vehicle segment, where the demand for heavy trucks is expected to be down sharply this year; as a result of Chinese government requirements to replace all China III and lower emission vehicles with vehicles meeting China V and China VI emission standards by the end of last year.
13:47 Joe Delmont
Thank you, Yosyf.
Look for Yosyf’s report on the economic outlook for North America in an upcoming PowerTALK news report.
The data used here is pulled from two of the major Power Systems Research databases, OE Link — the database of OEM production and forecast data, and EnginLink — which provides engine production forecast and specific data. Contact us for more regional production forecasts by industry segment.
14:19
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