Weak global demand and spare capacity at global suppliers persists

The GEP Global Supply Chain Volatility Index — a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses — recorded -0.18 in August (vs. -0.50 in July), showing sustained idle capacity at global suppliers as demand conditions remained subdued and procurement managers stayed cautious.

August is the fourteenth successive month in which global demand displayed weakness, reflecting the brittle global economic environment.

Conditions are their most fragile in Europe, where demand continues to fall drastically, and recession risks appear their most prominent.

Demand also fell considerably across North America in August, indicating a slowing economy. In contrast, demand conditions are more stable in Asia, despite the slowly Chinese economy, with purchasing rising strongly in India and in other economies such as Indonesia and Vietnam.

Notably, global transportation costs rose to their highest level since February amid renewed pressures on fuel prices as oil producers announced cuts to supply. US and European manufacturers are also experiencing some renewed pressures arising from staff shortages due to tight labor markets and wage pressures.

Commenting on the August data, Neha Shah, president, GEP, said: “Our data shows that we’re currently on a fine line hovering between recession and stagnation. Despite many months of excess global supply and subdued demand, companies can expect rising costs from petrochemicals industries, shortages of certain commodities including sugar, rice, and wheat, and also wage pressures in some sectors because of the effective collective bargaining by employees.”