At K, in several European manufacturers’ stands, we heard about the impending global economic slowdown in 2023 and 2024. One senior executive forecast a substantial slowdown, stating, “The cost of energy is too high to produce a simple product. The situation is tough in China. By 2026 we will have a global population of 8.3 billion. Currently, there are just too many [black] swans.”
The price of steel to manufacture sophisticated equipment has risen 2.5 times in the last three years. The cost of a container to the US has risen from US$ 2,000 in the same period to US$ 14,000. There is, understandably, a foreboding sense of gloom. A recent article in Reuters (26 October 2022) by Hari Kishan says, “The global economy is approaching a recession as economists polled by Reuters once again cut growth forecasts for key economies while central banks keep raising interest rates to bring down persistently-high inflation.”
Of the 22 central banks recently polled and cited in the article, only six are expected to hit their inflation targets by the end of next year. This is a downgrade from the July surveys, in which two-thirds of 18 central banks are expected to hit their respective targets by then. However, a strong 70% majority of economists, 179 of 257 surveyed, said that the chances of a sharp rise in unemployment over the coming year were low to very low, underscoring how widespread the view is among forecasters that it won’t be a devastating recession.
Global growth is forecast to slow to 2.3% in 2023 from an expected 2.9% this year, followed by a rebound to 3.0% in 2024, according to the Reuters polls of economists covering 47 key economies taken on 26 September 2022. The eurozone economy was expected to grow by 3.0% this year but flatline in 2023 before expanding by 1.5% in 2024.
China, the world’s second-largest economy, was expected to grow 3.2% in 2022, far below the official target of around 5.5% and also well below pre-pandemic growth rates. Excluding the slim 2.2% expansion after the initial Covid-19 outbreak in 2020, this would be the worst performance since 1976.
The Reuters article says that India’s economy was also forecast to grow well below its potential over the next two years with median growth forecast at 6.9% growth in the financial year 2022-23 and 6.1% in FY 2023-24, next year. Moreover, the Indian and even the Asian packaging industry seems buoyant – and continues to create significant capacities. The nominal growth of packaging (including inflation) is at the least in the low double digits. However, as Mohammed Nadeem of Paharpur 3P asked the attendees of the Elite Conference in September in Mumbai, “How can we call margins of 1% and 2% for packaging, sustainable?”
When we ask some of the suppliers at K about their outlook for the Indian market, they suggest first of all that with a large population, our consumption of packaging is still comparatively low, implying that there is considerable headroom for continued growth. Secondly, they see some of the capacity creation as cyclical, with some of the large investments slowing down perhaps after 2025 before they pick up again in the next cycle. Others, perhaps referring to the price sensitivity of the market, say, “India is difficult. However, with the population it has, it should be like the US or North America in terms of the number of film lines it can absorb.”
This article has been slightly corrected for clarity by the author on 8 November.