2013 Economic Outlook: Hope Mixed With Anxiety

It's not for nothing that 2013 is an odd-numbered year. Most economic and business forecasts for the year are rooted in a combination of hope and fear: hope that actions being taken by governments and enterprises will help revive stumbling economies and businesses, and fear of the many unknowns that could trip up even the most carefully calibrated plans.

What's clear is that no matter whom you speak with, 2013 will be a pivotal year for the global economy and the electronics manufacturing sector. Of course, it's easy to argue that the same could have been and probably was said about 2012 and previous years, but there are significant reasons for believing 2013 will be a defining year politically for major regions of the globe — continuing many of the changes that occurred in 2012. Certainly, the adjustments and readjustments that began years ago in portions of the economy are bound to accelerate this year.

First, Europe's leaders appear determined to keep a tight lid on the fiscal and debt cauldron that's still threatening to boil over, endangering the region's fragile economic unity. This means the continuation and intensification in 2013 of a wide range of actions aimed at curbing debt problems and sparking economic growth — policies that will have direct implications for member states as well as the European Union's key trading partners. The mess in Europe isn't over by a long shot, and discussions as well as actions to resolve this will continue through 2013, according to economists and government officials. Late in November, reports indicated the severity of the problem facing the region and pointed to signs showing that the continent's economy had slid into a “double-dip recession” in the third quarter.

Companies throughout Europe and in other geographic locations, as well as national governments in Asia-Pacific and North America, will be paying close attention to events unfolding in the EU area and will most likely step up actions in their regions to limit any negative impacts and squeeze as much benefit as possible from any positive initiatives. In its latest report issued in October, the International Monetary Fund projects that the eurozone economy would shrink by 0.4 percent in 2012, compared with the 1.4 percent expansion in 2011.

The region's economy will barely grow in 2013, however, improving just 0.2 percent — depending on how successful the area's governments were in dealing with their challenges. “As a baseline forecast, we expect the global economy to continue to expand modestly,” said Standard & Poor's Chief Global Economist Paul Sheard in a press statement. “We expect that the U.S. will avoid the fiscal cliff and eke out about 2 percent growth, policymakers will keep a lid on the eurozone crisis, and the recession there will remain relatively shallow, China will experience a ‘soft landing' in its growth deceleration, and Japan will grow modestly while remaining stuck in deflation.”

That's the bad news for 2013. The year isn't likely to turn out all negative, according to the IMF. In fact, the global economy is seen improving slightly in 2013 from the prior year. Total growth for 2013 is forecast at 3.6 percent, up a bit from 3.3 percent in 2012. While problems are seen persisting in the eurozone as well as in North America, the rest of the world is forecast to pick up the slack. The IMF said it expects economic growth in emerging market and developing economies to average 5.6 percent in 2013, up from 5.3 percent in 2012 on improving conditions in China (8.2 percent vs. 7.8 percent), India (6 percent vs. 4.9 percent), and Brazil (4 percent vs. 1.5 percent).

“The recovery is forecast to limp along in the major advanced economies, with growth remaining at a fairly healthy level in many emerging market and developing economies. Leading indicators do not point to a significant acceleration of activity,” the IMF said. Amid sharply differing developments across advanced and emerging market and developing economies, the world unemployment rate is estimated to remain flat during 2012–2013, near 6.25 percent. Unemployment rates have on average declined below pre-crisis levels in emerging market and developing economies, but they remain elevated in advanced economies.

In the United States, efforts to spark growth and employment will be ramped up over the next six months, even as politicians — conscious of the budding debt problem at home — try to control spending in other segments of the country's economy. Such measures will affect healthcare spending, subsidies and tax breaks for industries, government recruitment, local government infrastructure expenses, social support outlays, and regulatory activities aimed at increasing tax receipts.

Economists believe the US will perform better in 2013. While many industry segments will see uneven growth, the economy itself is expected to benefit from efforts to spark growth both in Congress and by federal and state governments. For this to happen, companies will have to resume hiring and may start doing this later in 2013, once the country has implemented policies designed to fire up the economy, said Mark Zandi, chief economist at Moody's Analytics.

“The economy is expected to remain on its current slow growth path until the next president and Congress negotiate around the fiscal cliff, increase the Treasury debt ceiling and lay out a credible path to fiscal sustainability,” Zandi said in a research report. By 2014, growth will be in full swing as the construction cycle definitively turns up. Real GDP growth is expected to approach a 4 percent annual pace, with job growth above 250,000 per month and unemployment steadily declining. The economy should return to full employment — defined as a 5.8 percent unemployment rate — by early 2016.”

What does all this mean for the high-tech and electronics market? Companies in this industry should brace for some turbulence at the beginning of the year, lackluster sales in the first quarter, and further pressure as Europe sorts out its fiscal crisis.

In response, many companies will try to reduce costs at moderate levels and even scale back capital expenditures and any other major financial obligations. Companies that have much experience riding economic storms know this is probably the best time to invest in product development in anticipation of the eventual market turnaround and to ensure that they aren't caught flatfooted when the anticipated demand upsurge rolls in. Of course, performance at specific industry level will vary, depending on the market application and anticipated demand levels.

Industry executives expect radical reorganization actions at major semiconductor companies as the industry accelerates its shift to an “asset-lite” manufacturing strategy. At the surviving integrated device manufacturers (IDMs), such as Texas Instruments and STMicroelectronics, selling, general, and administrative (SG&A) costs will be savagely trimmed back in the first half of 2013 due to continued pressure to balance expenses with stalling revenue growth. Some of the cutbacks will have an impact on capital expenditure investments, and we can expect the IDMs to use the services of wafer foundries for next-generation semiconductor production.

This is good news for big foundries such as Taiwan Semiconductor Manufacturing Co. Ltd. and smaller players such as GlobalFoundries. Demand for foundry services is bound to surge in the first half of 2013 and even more strongly in the latter half and in future years. Whether these companies will be able to meet the anticipated increase in demand is questionable, but the impact of a foundry demand-supply imbalance may not be immediately felt by the supply chain until sales begin to climb strongly. That's when we'll see whether the industry has been smart or foolish in pursuing the asset-lite (some call it “asset-smart”) strategy.

Many observers don't pay that much attention to the back end of the electronics supply chain or the support services providers such as subassembly, contract manufacturing, distribution, logistics, and packaging, but the companies in these areas hold the key to the good health of the industry. If these segments tighten their belts too tightly, 2013 will be memorable not just for its weak start but also for its messy finish.

The year isn't going to be a dud, and a rebound may happen faster than anyone is expecting. Line up key segments of your supply chain and make sure they are flexible. That's the only way to survive the coming storm and still rake in enough profit once calmer weather returns.

This article initially appeared in the December issue of Supply Chain Velocity digital magazine. Click here to read other articles in the package.

34 comments on “2013 Economic Outlook: Hope Mixed With Anxiety

  1. SP
    December 27, 2012

    NIce snapshot for the new year. It will be nice to see who are major players in M&A. How Apple as a company contnues or evolves…Intel and ARM etc.

  2. Himanshugupta
    December 28, 2012

    yeah, as world did not end in 2012 so we should start taking and focusing about future AGAIN. 

  3. bolaji ojo
    December 28, 2012

    Rich, This may be promising news (or bad) but the forecast numbers don't always play out as predicted. Often, they get revised downward or upward and we end up in . . . ?

  4. Mr. Roques
    December 28, 2012

    What would happen if the POTUS BO doesn't reach an agreement with Congress? Will the exercises that companies were doing of trying to bring industries on-shore be stopped?

  5. _hm
    December 28, 2012

    It will be interestig year for sure. More jobs will return to USA. Apple, Google and Amazon will be key organization for more innovation and new manufaturing in America.


  6. Himanshugupta
    December 28, 2012

    @hm, true. I had hoped that the economic recovery would be faster. New year will see whether the balance shifts more towards Asia or not.

  7. Houngbo_Hospice
    December 29, 2012


    Be ready for some desappointments. As Bolaji said, “forecast numbers don't always play out as predicted.” But we do hope for the best.

  8. hash.era
    December 30, 2012

    I dont think there will be a huge improvement in the year 2013 but definitely not going. There are things which will help the economy and technology will be involved at a great height for that.

  9. _hm
    December 30, 2012

    @Hospice: Returning back to home USA is more logical step to me. I have strong feelings that it will work out very good.


  10. Himanshugupta
    December 30, 2012

    I think 2013 will be interesting from the point of view of reverse outsourcing. We will read more announcement of manufacturing returing to West and some future forecasts on both Eastern and Western economy.

  11. Taimoor Zubar
    December 30, 2012

    “More jobs will return to USA. Apple, Google and Amazon will be key organization for more innovation and new manufaturing in America.”

    @_hm: I do agree that more and more manufacturing will shift back to the US. I know about Google which is looking to do that. However, since Apple has outsourced it's production to Foxconn, I don't think it's that easy for Apple to move the manufacturing back to the US. It may take them several years to do that.

  12. Taimoor Zubar
    December 30, 2012

    What do you guys think about the likely performance of the Chinese Economy in 2013? Will it continue to dominate in the electronics manufacturing area? Or will the rising labor cost and other factors take away the advantage away from China?

  13. bolaji ojo
    December 30, 2012

    TaimoorZ, Certainly. China remains the major manufacturing location for global production of most consumer products. That's unlikely to change in 2013 or the year after and even the following year. A major change such as the one you think might come won't suddenly emerge. If China starts to lose manufacturing contracts it will sneak up on the country and then by the time many realize this is happening it would be almost irreversible.

  14. Daniel
    December 31, 2012

    “It's not for nothing that 2013 is an odd-numbered year”

    Ann, I don't think such numerologies have any role in business or market. Market is always volatile due to various factors like disaster, excess/limited production, political instability etc. I personally believe that 2013 will be good for the semiconductor and electronics industry. Atleast am hoping for that.

  15. Daniel
    December 31, 2012

    Bolaji, you are right. Eventhough many of the companies are planning to move to west, the complete migration may take some more time and there is no doubt that China will be the global player for another 3-5 years. But at the same time, there are chances from other countries like India, to emerge as global hubs for OEM and semiconductor.

  16. Anna Young
    December 31, 2012

     “I personally believe that 2013 will be good for the semiconductor and electronics industry. Atleast am hoping for that.”

     Jacob you're correct, growth is anticipated in the Semiconductor segment and China's medical electronics market will also continue to see growth. Like you mentioned, so will other parts of the electronics markets. On the whole economic growth will continue but slower.

  17. Himanshugupta
    December 31, 2012

    Rich, i think that its a very valid question whether West is suitable for manufacuturing after a decade. I think that Western countries might be more balanced now in their approach as there will be competition from East but let's have more opinions.

  18. Himanshugupta
    December 31, 2012

    @TaimoorZ, China is suppose to grow with 8% (highest in emerging economies). So the expectations are high for a good economic performance. Even if some manufactuing move out of China, the Chinese market will likely absorb some turbulance.

  19. Anna Young
    December 31, 2012

    @_hm, Yes 2013 will see more jobs return to the USA. Particularly the electronics and manufacturing sectors are expected to set the pace. However, I don't think it'll be in droves as expected. Bearing in mind, despite rapid wage increases in China, labour cost in china still has an edge over United states/western countries. It will certainly be an interesting year.

  20. Anna Young
    December 31, 2012

    I agree china's economic growth in 2013 will still be enviable despite the predicted doom and gloom.

  21. Anna Young
    December 31, 2012

       @hash. Era, you're right. In the UK for example, economic growth forecast is below national average. However, in China, India technology has been one of the contributor to the national economy and we'll see this trend continue in 2013.

  22. Wale Bakare
    January 1, 2013

    >>Supernatural Semiconductors<


    January 1, 2013

    It always seems like we are 4 years away from recover but we never seem to get there.  Roll on 2016,

  24. Ariella
    January 1, 2013

    @flyingscot I know what you mean. And by the time 2016 rolls along, we can be told that we were on the way but were derailed by circumstances that had not been anticipated.

  25. Daniel
    January 2, 2013

    “I wouldn't be surprised to see a new website from UBM, called “Supernatural Semiconductors,” or “Technology Numerology.” Well, looks like there'll be no apology for the astrology”

    Rich, I don't know in a technological era, whether young generation believes in such super natural things. But old age peoples in most of the Asian countries, still prefers numerology & astrology for analyzing their person life.

  26. Daniel
    January 2, 2013

    Ann, I think in general there would be some growth, but the economic crises in US and EU have its own impact. Most of the major consumers are from these countries.

  27. Eldredge
    January 2, 2013

    The one sure thing about predictions is that they will be wrong!

  28. Ariella
    January 2, 2013

    @Rich Oh, I can say that here with tongue-in-cheek, but I couldn't pull off that sort of equivocation as my normal form of communication.

  29. Ariella
    January 2, 2013

    @Jacob I don't buy into astrology, though I have met with a couple of people who do, which surprised me no end. One of them casts horoscopes for couples before she matches them up — and no, she's not from India. Today we try to make predictions based on information, and we call it analytics. That's what is used for everything from weather to financial forecasts. Some even apply to solving crimes.On another board, someone mentioned that a detective series, Numb3rs was devoted to that principle. 

  30. Daniel
    January 4, 2013

    Ariella, thanks. That's I mentioned that in technological era all such predictions or forecasting are based on several analytical method and interpretations at various level based on various factors. Nobody is going to believe such blind numerology or astrology.

  31. Taimoor Zubar
    January 8, 2013

    @Himanshugupta: The expected growth rate seems good but I still feel other factors might come into play during the year which will affect the growth in Chinese economy. One of them is likely to be high labor costs in China and the other the move towards moving manufacturing back in the US.

  32. Taimoor Zubar
    January 9, 2013

    “If China starts to lose manufacturing contracts it will sneak up on the country and then by the time many realize this is happening it would be almost irreversible.”

    @Bolaji: I think China may still get to retain the existing contracts but it may not get a chance to get new ones because of the high labor costs. That would eventually hurt the economy in the long run.

  33. hash.era
    January 30, 2013

    Anna : Definitely it will since the market analysis of the indians are very high compared to others. So they do get in 1st somehow. Anyway this is applicable for technological items only.

  34. hash.era
    January 30, 2013

    Yet it wont be easy Himanshugupta. I think it will be a huge impact for the field definitely.

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