The global economy is on a healthy rebound trend, but issues with supply chain, logistics and the re-surgency of COVID-19 during Q3 2021 remained. Power Systems Research witnessed a strong economic recovery globally in H1 2021; however, many challenges still remain. The rebound will continue to vary widely among different regions/countries, but a complete recovery is not expected until the global pandemic is under control. With some minor changes among regions and market segments globally, our overall forecast from last quarter remains in place, and that is good news to our industry players, OEMs, powertrain, and component suppliers.
The global economic performance last quarter was in line with our initial projections from earlier this year. As we projected last quarter, we did not expect any rapid economic recovery in H2 2021, however, we continued to witness a steady increase in economic activities. During the last quarter of 2021 Power Systems Research expects this trend to remain in place.
Government support in the form of fiscal policies and public health management are driving the economic rebound and largely explain variations in performance across countries. With the targeted monetary support to consumers and certain industries, the demand for products and services globally is coming back, and we expect this trend to carry over into Q1 2022.
Differences in the strength of the economic recovery across countries are being driven by the extent of government support to vulnerable workers and businesses, by a country’s dependency on particular sectors such as tourism, as well as by public health and vaccination policies.
The contraction in overall performance and employment levels has been universal, but how, when and if countries will rebound remains unclear. According to a report from the Organization for Economic Development as of October 2021, global GDP growth is now projected to be 5.9% this year. According to the OECD report, GDP has already risen above its pre-pandemic level and the recovery remains uneven with countries emerging from the crisis facing different challenges. For the global outlook in 2022, the OECD upgraded its May forecast to 4.9%.
We expect global inflation to remain broadly present during 2022. While price pressures in developed economies have already intensified as economic activity continues to recover (we have started to see this trend in the US during Q2 and Q3 2022), inflation concerns in developing markets have been declining mainly due to stabilizing currencies and reduced supply-side pressures. In 2020, global inflation levels were at 1.939% and we project this level to increase above 2% in 2021 and 2022. Consumers have been spending less on services and more on goods since the pandemic began.
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 vs. 2020. As we have stated in the past, the only exception is China’s Medium and Heavy Vehicles segment, where the demand for heavy trucks is expected to be down sharply this year as a result of the Chinese government requirement to replace all China III and lower emission vehicles with vehicles meeting China V or China VI emission standards by the end of last year.
Among all industry segments on the global scale, the On-Highway segments such as Passenger Cars, and Minivan/SUVs are expected to rebound at 2-4% globally in 2021. This rate is slightly lower from last quarter projections. It is worth mentioning that passenger car production in North America will decline 11.1% this year vs 2020. This is mainly due to Ford stopping production of cars in the U.S. and the market transition and overall demand towards SUVs type transportation.
Despite declines in China, Commercial Vehicles segments globally will be up 5.6% in 2021 vs 2020. Consumer oriented applications are positioned to gain alongside the economic recovery. Heavy industrial segments, such as Agricultural Equipment and Power Generation, which experienced more moderate declines in 2020, are expected to add 4.2% and 3.5% respectively.
Following a rapid deterioration of production levels in 2020, we expect global demand and production to increase across the board in 2021 vs. 2020, averaging 7.84% among all market segments, which is in line with the previous projection from Q2 2021 (at 7.4%). This growth trend is primarily driven not only by strong recovery efforts, but higher inflation rates, and current supply chain challenges are also slowing the speed of the recovery. However, we do expect the growth trajectory to continue strong into 2022. While global GDP output has reached its pre-COVID levels, it is certain that some developing economies will not reach their pre-pandemic levels even by end of 2022. PSR
Yosyf Sheremeta, PhD, is Director of Product Management and Customer Experience at Power Systems Research
