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10 October 2013 | Andrew Pring
Companies must start rebuilding their inventories now in preparation for a surge in demand that could be imminent, says John Glen, CIPS economist and senior lecturer at Cranfield School of Management.
Speaking at the CIPS Annual Conference in London today, Glen warned that global inventory levels are at historically low levels of 10-11 percentage points lower than they should be. “There is a danger that when demand returns it comes back very quickly like a bullwhip bringing accelerating price increases.”
Glen’s message underlined that of CIPS group CEO David Noble whose welcoming speech cautioned of “horrendous shortages” in certain areas and the threat of allocations being imposed on some particularly in-demand items.
Glen said confidence is returning to companies in the UK but there are still major issues which could derail economic recovery such as the withdrawal of quantitative easing and Eurozone problems. He also said that failure to resolve America’s national budget crisis by October 17 could have severe repercussions on the global economy, but remained confident a solution would emerge in time.
“There is no way out of the current economic problems without growth, and this must come from private sector investment and an increase in exports,” Glen said.
Consumer confidence will not play a significant role in driving recovery, he said. “Although the price of many goods has have fallen significantly – so-called ‘good deflation’ – and there is a widespread feeling they cannot fall any lower, average wages are not keeping pace with inflation and this is still restraining consumer spend. We need just a little bit of wage inflation – something in the region of 3 to 4 per cent would not be damaging to the economy.”
Risk-averse banks will continue to rebuild their balance sheets and will not play a strong role in aiding recovery said Glen. “History shows us that banks follow rather than lead economies out of recession."
Future global growth is more likely to be found in countries such as Turkey, Indonesia, Mexico and Africa, predicted Glen. “The BRICS – Brazil, Russia, India and China – are yesterday’s story.”