As we head into 2021, the global economic outlook can only be described as unclear. Although it appears increasingly likely that a vaccine for the coronavirus will be coming early in 2021, its effectiveness remains to be seen. Currently, governments around the world have been, and are continuing to engage, in a balancing act to try and open their economies without increasing the transmission of the virus. At the same time, many of them are trying to pump stimulus into their economies to limit the economic damage. For now, until the vaccine is released into the general population and proves to be largely and permanently effective, this balancing act will go on.
What the world has witnessed over the last months is a disruption for which there is no modern comparison. It appears to have revealed that modern governing and economic structures and institutions are inadequately designed for such an event. Specifically, many governments have focused all of their efforts and decisions based on the coronavirus, to the exclusion of many other societal challenges (such as the mental health of people in extended lockdown, medical procedures that get put off, etc).
While blaming certain governing actors for mishandling responses to the virus may seem justified, there isn’t really a government out there, apart from a couple of possible exceptions, that can be said to have handled it well. And even the possible exceptions may be due more to luck and/or unique circumstances than to any specific policy path that was pursued. In short, any change in various governments over the coming months is unlikely to fundamentally improve the situation, absent an effective vaccine.
Assuming an effective vaccine is widely distributed in the coming months, calculating the true damage of the last 12 months might take years to understand. Apart from the deaths and debilitation caused by the virus itself, many people’s livelihoods have been destroyed and their life paths altered irreparably by the lockdown response. Many small businesses, especially those in the restaurant and entertainment industry, have been forced to close. Companies that took decades of hard work to create were effectively wiped out by government edict. The effect on society with a segment of its entrepreneurial talent essentially wiped out is unknown, but it is unlikely to be positive.
In some ways, what we are living through is a reversal of the globalization process that has been underway over the last 60 years. Industries that were dependent on these trends such as airlines, hotels, business conference centers and international trade show locations have been heavily impacted and are not likely to return to their former levels, maybe not even with an effective vaccine. As many have adapted to virtual meetings, this likely means a permanent drop in the demand for these industries. The percentage of people who now telecommute would have taken decades to build up to naturally, but the virus made it happen in a few weeks.
Furthermore, the deglobalization (re-localization) process that was begun during the Trump Administration will become more pronounced as larger, more influential economies look to shorten and increase security of supply chains. This is not to say that a globalized world is going away or that we are going to return to what we imagine 1930s isolationism was—far from it. Communications technology and the technology for moving people has developed too far for something like that to happen. In fact, people who have been working largely online for years likely haven’t noticed much of a change at all, except that now they can work from home instead of traveling to an office.
On the other hand, many societal segments that have been the net losers in the globalization process have found their political voice over the last few years through populist candidates and political parties. Many of these same segments are the ones that have had their livelihoods and economic futures damaged or crushed by responses to the coronavirus. Whatever this bodes for the future, the political pressure in those societies to economically decouple from China and other places perceived to be risky is unlikely to let up. The argument for having home industries produce essential goods and services within one’s border, and the trade protectionism that this will in many cases require, is likely to continue to be a politically strong one going forward.
Impact on Pump Industry
As far as the American pump industry is concerned, the impact will likely depend on various trade policies that are enacted around the world. Pumps are essential for modern life to exist, and so the industry as a whole is in a very strong position. However, specific industry segments could see reduced competitive advantages if trade negotiations (or the lack thereof) result in Country X retaliating against United States tariffs, even on unrelated products, by imposing tariffs on various pump components.
Additionally, it appears increasingly likely that we are looking at what economists would call a “permanent” reduction in economic output as opposed to a “cyclical” reduction, such as what has historically been seen in recessions. This reduction will, over time, eventually be erased as economies adjust and grow. And it may be a relatively small reduction (3% to 5%). However, in the meantime, there is likely to be a somewhat reduced demand for pumps in certain segments, such as hydrocarbon applications, until economic output returns to something approximating its prior level.
For the foreseeable future, there can be no return to “normal” until either the virus is eradicated, herd immunity is largely achieved, a strong vaccine becomes available and widely dispersed in the population, or the political institutions decide that the virus will do what it will do and stop trying to lock everything down. Even with a vaccine apparently coming online, it is going to be awhile before the coronavirus is something confined to the history books. Consequently, future planning for companies in the short and medium term is going to be more challenging than it usually is.
Normally when looking ahead at the end of the year, there is an attempt to show the differences between the North American and European markets for the pump industry. This year, that has not been done for two reasons. The first is that the huge uncertainty going forward is expected to not be radically different in its effect worldwide. Second and most important, without anything to compare with the current situation, market-specific predictions can be nothing more than at best a throw of the dice.
In general, however, the more essential an industry is at this time, the better position it will be in to ride out the storm.