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Automation Technologies 4/2016

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Automation Technologies 4/2016

Global economic trends,

Global economic trends, US Industrial outlook and T-TIP Sushen Doshi In North America, the US economic outlook has extremely positive prospects with unemployment rate continuously falling, inflation in control, low interest rates and increased consumer spending. Despite all this the manufacturing growth remains erratic in 2016. Author: Sushen Doshi, correspondent India for AUTO- MATION TECH- NOLOGIES NEWS AND MARKETS In comparison to the recent past, the global economy is all set for a growth cycle. But the texture of this growth will be somewhat different, with gains and spoils going to different players this time around. According to the World Economic Outlook released by International Monetary Fund at the beginning of 2016, the global economy is expected to expand by 3.4 % in 2016. Both advanced and emerging economies seem to contribute to this improvement. IMF feels that Europe is on path for a moderate GDP growth. Asia is the wild card for the global economic outlook. The situation in China in particular is opaque with China dropping its growth rate down to less than 7.0 %. Japan with its shrinking population and work force is unable to draw big growth numbers, though it has managed to keep unemployment rates low. India’s growth remains strong. Despite oil prices back at mark and rising inflation, India is projected to grow at 7.5 % in 2016. The commodity-dependent economies of Latin America, Africa along with Middle East, are having high volatility with increasing downward risks. In North America, the United States economic outlook has extremely positive prospects with unemployment rate continuously falling, inflation in control, low interest rates and no trade wars in sight with major trade partners. There are no major storms in the forecast for the U.S. economy. Due to its concentration in oil and other commodities, Canada’s growth will be slower than the U.S. Mexican economic growth is stable, with low inflation and low unemployment. Overall the North American continent’s prospects are good for the coming years. U.S. industrial outlook United States contributes a lion’s share in the GDP of North America. To understand the direction where North America is headed, it is important to know where the US is going. After first four months of erratic growth in 2016, the industrial manufacturing production output showed signs of good recovery with 3.8 % growth in April. In these months, the industrial manufacturing sector in the US is concerned with 3 main issues: Oil prices, strong dollar and high inventories. Oil prices have bounced back up from $ 35 in early February to $ 49 at the end of May, but this is not enough to stop the fall in drilling activity. The decline in investment in this sector directly affects the manufacturing. Another factor directly affecting the manufacturing sector is the strong dollar over a long period. Since June 2014 until January of 2016, the dollar has strengthened more than 20 %. From its peak in January 2016, it has now depreciated 4 % through May. The recent depreciation is a good sign but it takes a long time for dollar to re-adjust, thus dragging the foreign trade or export related manufacturing growth for several years. Apart from Oil prices and strong dollar, the manufacturing sector is further burdened by high inventories; the ratio of inventory- tosales is exceptionally high at manufacturers and even wholesalers. In order to reduce the inventories, manufacturing firms have reduced production volumes relative to sales. These factors contribute to a slow growth in 2016, but as these concerns ease out the manufacturing growth will be back on track in 2017 and 2018 with more than 2.5 % growth rates. Focus on industry sector Automobiles sector is expected to grow roughly 4 % in 2016. This sector benefits from the low gas prices, strong job growth, and replacement cycle that encourage the purchase of vehicles; this favours the automobiles and its associated industry. The iron and steel industry is predicted to decline by 2-3 % in the next 2 years. In the US, the capacity utilization in the steel industry has improved as compared to last year and there is also a significant progress in bringing down the steel inventories. Industrial machinery sector along with engine, turbine and power transmission equipment is projected to AUTOMATION TECHNOLOGIES 4/2016

decline in 2016 and then rise in 2017. World Semiconductor Trade Statistics predicts flat markets in 2016 and 3 % growth in 2017. Optoelectronics and sensors will remain the growth products in the semiconductor industry. Industrial process instruments measure, control, or display process activities such as temperature, pressure, vacuum, and viscosity etc. This sector is expected to grow constantly around 3 % in 2016, 2017, and 2018. Electrical equipment sector consists of transformers, motors and generators and industrial controls. The production levels are projected to decline 2 % in 2016 [1]. North America and EU: strategic and trade partners The global economy hinges on the performance of the EU and the U.S, accounting for almost half of the world’s economic output and 40 % of global trade. The importance of economic cooperation between them is much more significant and urgent. On both sides of the Atlantic, it is important to strengthen the economies by ensuring long-term stability. This is where the ‘Transatlantic Trade and Investment Partnership’ agreement comes into picture. T-TIP aims to provide the economic and strategic framework for long term growth and sustainability. For thousands of companies in Germany and other parts of Europe, unnecessary barriers to trade and investment – tariffs, red tape, delays, and uncertainty over product requirements – stand between entrepreneurs and potential customers. Today, companies have to assume additional costs of between 5 and 20 % because their products have to be specially equipped for the US market. Removing these barriers makes sense. T-TIP and the German mechanical engineering sector Mechanical engineering firms in Germany believe that a thoroughly negotiated free trade agreement with the USA would offer a great opportunity for more exports to the United States. There are lot of opinions and analysis claiming that the ‘German Mittelstand’, considered as the backbone of the German economy, in particular would be subjected only to disadvantages and be crushed by large corporations as a result of the T-TIP. This paints a totally distorted picture as T-TIP has provisions for establishing a firm investor protection policy which offers legal security, particularly to SME’s. This talk of small and medium scale industry under threat completely fails to recognise the potential that would arise from a free trade agreement with the USA, particularly for these medium-sized companies. The main benefits of T-TIP are: n lower engineering costs, lower development and manufacturing costs, increased manufacturer/supplier confidence, reduced time from factory to market. n lEliminating customs duties would bring cost savings of hundreds of millions in the German mechanical engineering industry alone. n lIn addition, standardisation of licensing requirements and norms would mean that high amount material costs and time would be saved too. Mechanical Engineering products account for 13 % of EU exports to the USA. In fact, last year mechanical engineering accounted for a higher share of EU exports to the USA than the automobile industry. VDMA, the German Mechanical Engineering Association, the largest engineering association in Europe, has firmly supported the T-TIP. According to VDMA estimates, mechanical engineering firms currently incur additional costs of 5 to 20 % to adapt their products to the regulations of the US market. This is because of technical conversion and the need for local recertification, particularly for electrical components, even when approval has already been granted for the European market. At a meeting in Munich on 1 st March, VDMA discussed various aspects that concern the capital goods industry with the US Trade Representative and chief negotiator for mechanical engineering and the automotive industry, Bryant Trick. In the last weeks of February, Brussels hosted the 12 th round of T-TIP negotiations. The agenda of these negotiations included topics of investor protection, regulatory cooperation and opening up the US procurement markets, followed by discussions on rules of origin and public procurement. Discussions on these topics are intended to facilitate existing and future cooperation on regulatory issues. Regardless of the current political irritation between Europe and America, economically and strategically the choice is clear. By lowering barriers to trade and investment, T-TIP will reinforce the position of American and EU industries. But the risks and challenges are deeply concerning as well. By the end of 2016, the negotiations will end and a final decision will be made regarding T-TIP. z Photographs: teaser fotolia Literature note: [1]The numeric data is acquired from various U.S government websites and sources Your Global Automation Partner Little Giants! Ultra-Compact I/O Modules Easy and flexible mounting due to extremely compact design (32 x 144 x 31 mm) Universal usage with TURCK multiprotocol in PROFINET, EtherNet/IP and Modbus TCP networks Reliable operation with fully potted, shock and vibration-resistant electronics