GLOBAL REPORT
SUMMARY. The global economy performed very well in 2021 and continues to recover, along with trade, employment and incomes. But the revival is unbalanced, with regions/countries, businesses and people facing very different economic realities. Recent improvements also conceal structural changes, which means that some sectors, jobs, and technologies will not return to their pre-pandemic trends. Based on the most recent economic developments and trends, Power Systems Research remains somewhat optimistic about the global recovery.
Many of us hoped to be in the post-Covid phase by now, but it is evident that there is no quick way out. The pandemic has had a profound impact on the world economy, and it will continue to challenge established norms of life and business into the foreseeable future. As we start the new year, many challenges remain, new and old alike: re-surgency of COVID variants, restrictions on travel, supply chain challenges, shortages of materials/goods, inflation, and employment, as well as renewed geopolitical tensions across many parts of the globe.
Power Systems Research witnessed a strong economic recovery globally in 2021, despite regional differences. Output in most OECD countries has now either surpassed or is about to reach pre-pandemic levels, but lower-income economies, particularly those where vaccination rates are low, are at risk of being left behind. Furthermore, the rebound will continue to vary widely among different market segments.
Global inflation re-surfaced in 2021 and presents a real risk to economic recovery in all regions. The renewed inflationary pressure risks lasting longer than was expected a few months ago. The surge in retail and wholesale energy costs in late 2021 will undermine economic growth prospects for large parts of Europe and Northeast Asia well into 2022. Rising food and energy prices already have impact on low-income households in particular.
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 bounced back in 2021, and we expect this trend to continue in 2022.
The overall economic recovery performance has been universal and shows a positive trend globally, but how, when and if specific countries will rebound remains unclear. According to a report from the Organization for Economic Co-operation and Development as of December 1, 2021, global GDP growth was on track to be 5.6% in 2021, a downward revision of 0.1% since September 2021. According to the OECD report, GDP has already risen above its pre-pandemic level, but the recovery remains uneven with countries emerging from the crisis facing different challenges.
For the global outlook in 2022, the OECD left its forecast unchanged since September at 4.5 %.
To briefly summarize the global industrial outlook for 2022, despite ongoing challenges, it is clear that every market segment globally will continue on the recovery path and show positive growth vs. 2021.
Among all industry segments on the global scale, the On-Highway segments such as Minivan/SUVs and Passenger Cars are expected to grow at 4.7—5.7% globally in 2022. This rate is slightly improved from last quarter projections due to the expected improvement in supply chains. The car industry is one of the major manufacturing sectors being hit by shortages of intermediate goods such as semiconductors, and by bottlenecks in shipping and metals. Car production and sales have been struggling to meet the demand globally while prices for both new and used vehicles have risen in a number of countries.
Following a rapid deterioration of production levels in 2020, we expect global demand and production to continue to increase across the board in 2022, averaging 5.6% vs 2021 among all market segments, which is slightly lower than our previous projection from Q3 2021 (at 7.4%). The decrease in growth expectations is primarily driven by higher inflation rates, ongoing supply chain challenges as well as increased tension with global political agenda.
AGRICULTURAL. In comparison to all other industries, the agricultural machinery segment performed well during the pandemic. Last year, globally, the segment showed almost 10% growth vs. 2020. We expect growth to continue for the next few years. However, the growth rates will be slower than in 2021. We estimate the industry will add 2.8% globally, which is lower by 1.4% from previous Q3 2021 estimates. Overall equipment production volumes are smaller mainly due to changes in farming practices and are driven by the transition to larger equipment and machines.
CONSTRUCTION. The global Construction machinery sector showed a strong rebound last year at 9.5% vs 2020 and is well positioned for continues growth over the next few years.
As we expected, the growth in economic activities regained ground last year; currently, we estimate the global construction equipment market will grow 5.7% in 2022 vs. 2021. This estimate is higher from the previously forecasted growth from three months ago by about 1.8%
In terms of 2022 growth trends among regions, South/Central America, North America, and India will post the highest recovery rates in 2022 vs 2021, at +16%, 10% and +8.5%, respectively. The estimates for this sector are slightly improved from our previous quarter projections (Q3 2021).
Other Off-Highway segments, such as Industrial, Lawn and Garden and Power Generation, closely followed the latest global economic conditions last year and we expect the growth will follow the general recover trend as well. We estimate that recovery growth in 2022 vs 2021 in these segments will be +11.3%, +9.1% and 8.6%, respectively.
For Industrial and Lawn and Garden segments, these estimates are slightly improved from our previous numbers from Q3 2021. The Power Generation market made much bigger improvements in activities during past quarter. At the same time, we do not expect any significant growth in this sector, and we see it averaging 5-6% over the next few years.
For the On-Highway sectors in 2021, we saw a solid recovery in production volumes across all product classifications, despite major supply chain disruptions. Cumulatively, across all on-highway sectors the overall rebound was 4.6% in 2021 vs 2020. As economic activity rebounds, we expect this trend across all product categories to accelerate in 2022. The Passenger Cars segment contributes almost 40% of the volume to the overall on-highway vehicles segment. We estimate a solid gain in growth in 2022 vs 2021 at 5.1% globally, which is lower by 1.5% from the previous estimates, mainly due to overall slower economic projections for 2022.
Passenger Cars The car industry is one of the major manufacturing sectors being hit by shortages of intermediate goods such as semiconductors, and by bottlenecks in shipping and metals. Car production and sales have fallen globally while prices for both new and used vehicles have risen in a number of countries.
Globally, passenger car production is expected to grow at 5.7% in 2022 vs. 2021. India, Europe, North America, and South/Central America will contribute the most to the increase with rates of 9.6%, 6.6%, 10.1 % and 26.7%, respectively. Brazil and India are estimated to grow faster than other countries, mainly due to emerging market conditions. Furthermore, we will continue to see a transitioning trend towards SUVs, which will further impact growth in the passenger cars market.
Recreational Products. This segment follows consumer-oriented products, and the pandemic has provided new opportunities, mainly due to the lock downs and improved work/life balance. Last year, this segment posted a 6.6% gain vs. 2020 and we expect the growth to continue at 4.5% in 2022 vs 2021.
Regionally, we expect North America and South/Central America to lead the growth in 2022 at 15.3%, and 39.3% vs 2021, respectively. PSR
Yosyf Sheremeta, PhD, is Director of Product Management and Customer Experience at Power Systems Research
