2025 Outlook Revised: Too Soon To Tell

We’ve been writing about recalibrating and responding to geopolitical and tariff uncertainty for the past month. However, a lot has changed over that time, and it continues to change by the hour.

Many economic forecasters are predicting a general slowing of growth in 2025 that will continue into 2026. They’re closely examining sentiment-based, high-frequency data to see if there are telltales in consumer spending and inflation expectations that might indicate a more drastic turn for the worse.

In the U.S., the University of Michigan consumer sentiment survey tanked in March, and inflation expectations rose. In China, consumer confidence slid in April 2022 and has stayed flat and low since then.

It’s hard to say where all of this will end up in the face of extreme policy uncertainty. Many will just try to keep their heads above water as things unfold.

In some cases, trade policy uncertainty causes economic players to pause. In others, it drives more extreme moves in the real economy. We’ve seen this with cross-border shipments of products that may be subject to higher tariffs in the near future. Switzerland, a major pharmaceutical manufacturer, saw its U.S. trade surplus spike from $13B to $21B between December 2024 and January 2025. More pharmaceuticals were shipped in those two months than over the previous twelve.

Most planners assume that slowing growth and stubbornly-elevated inflation rates will point toward consistently lower demand, but including a trade war in the mix can lead to turbulent ups and downs.

One way for businesses to maintain profitability is to understand the specific cost to serve customers and products in the portfolio. That means it’s time to return to a foundational principle in supply chain management. I don’t mean reviving traditional processes and methods of achieving profitable goals: I’m referring to adopting a revised mindset that builds robust, fast cost-to-serve models.

In the past, we’ve been able to run our customer profitability analysis (subscription required) once or twice a year, but that isn’t an option in the current environment. It probably will never be again, since cost to serve needs to be near real-time and fully integrated into our scenario planning.

Jeffrey Sonnenfeld heard from roughly 100 CEOs of the largest businesses in North America during the recent Yale Chief Executive Leadership Institute Spring Caucus. The talk was not bullish on investing in supply chain moves or adjustments, and the mood is one of holding back any investment until U.S. government policies stabilize.

That doesn’t mean significant investment opportunities are gone, but they might be more focused on M&A for a while. We need only to look as far as Blackrock’s bid to take a 90% stake in Panama Ports Company, which holds the contract to run two major Panama Canal ports until 2047.

Will companies make more modest moves to invest in manufacturing capacity inside and outside the U.S.? The response is muffled for now.

Global labor market conditions are generally still favorable. While employment growth slowed somewhat in the second half of 2024, it remained solid: Unemployment rates are generally low compared with the pre-pandemic period. The OECD average unemployment rate has remained 0.5% below the 2018-19 average.

The CSCO community tells us they’re experiencing something similar, but with a twist. Their teams might be fully staffed, but they lack the correct mix of skills and capabilities.

During a recent gathering of CSCOs, the group debated requiring an undergraduate degree for desk-based supply chain jobs. One camp said, "Show me the skills, and you’ll be hired." The other said, "Show me the degree first, and we’ll talk." You be the judge…

Most economic forecasts include a generalized caveat like the one below, and it resonates more now than previously: “These scenarios do not incorporate a further rise in uncertainty and weaker confidence, which would be particularly likely in the event of larger and wider tariff increases than in the baseline projections.”

Demand volatility and more policy uncertainty are heading our way. Run your scenario plans and make your no-regrets moves, but exercise strategic patience and acknowledge that geopolitics is playing out in the heart of supply chain.   

Wade L. McDaniel
VP Distinguished Advisor
Gartner Supply Chain
wade.mcdaniel@gartner.com