Key Insights: GEP Global Volatility Index January 2025
The GEP Global Supply Chain Volatility Index – a leading indicator tracking demand conditions, shortages, transportation costs, inventories and backlogs based on a monthly survey of 27,000 businesses — posted -0.21 at the start of the year. This indicates that global supply chains are effectively at full capacity, signalled when the index hits 0.
For context, the Global Supply Chain Volatility Index data was captured just prior to the US administration’s announcement of tariffs on China, as well as the initial announcement (and subsequent pause) of tariffs on Mexico and Canada.
A key finding in January was the marked increase in procurement activity across North America. The increase was entirely driven by US manufacturers, as purchasing managers at Mexican and Canadian factories sanctioned procurement cutbacks, indicating a darkened near-term outlook.
In Asia, many major producers in the region bolstered their demand for inputs to meet growing production needs, led by China and India. South Korea, in particular, reported a marked pickup in January.
By contrast, Europe’s industrial economy continues to struggle, with GWP’s data indicating still-significant levels of spare capacity across the continent’s supply chains. Factories in Germany, France, Italy and the UK held back on material purchases in January, implying that Europe’s manufacturing recession is set to persist a while longer.
“January’s rise in manufacturers’ procurement across APAC and the US. signals steady growth ahead in Q1,” says John Piatek, GEP’s Vice President of Consulting.
“Globally, companies are largely taking a wait-and-see approach to tariffs rather than absorbing the immediate cost of increasing buffer inventories. However, many Western firms are accelerating China-plus-one investments to diversify and near-shore manufacturing, assembly and distribution. European manufacturers are especially vulnerable, as the sector has been contracting for nearly two years with no turnaround in sight.
“In the US, where manufacturing represents just 12% of GDP, the bigger concern for business is the potential revenue losses in China because of trade tensions.”
- The world’s supply chains are operating at full capacity, with the notable exception of Europe, which remains in a protracted industrial recession.
- Asia’s manufacturing growth was reported by major exporters, led by South Korea, China and India.
- Despite the possibility of tariffs and significant uncertainty surrounding their implementation, global manufacturers are not stockpiling inventories.
What supply chains looked like in January 2025
DEMAND: After some pullback in the second half of 2024, global manufacturers’ purchasing of raw materials is slowly recovering. In fact, global factory procurement in Asia is in line with its average, while in North America (driven by the US), input purchasing is trending upward. This contrasts with the situation in Europe, which remains depressed as the region’s industrial sector struggles to break out from its prolonged downturn.
INVENTORIES: Global manufacturers' desire to safety stockpile remains contained. Reports from factories surveyed showing an increase in inventory levels due to concerns about price or supply were low in January.
MATERIAL SHORTAGES: Reports of shortages for the globe’s most critical items, such as commodities, electronic components, chemicals and food products, were at their lowest in five years during January. This suggests that suppliers remain well stocked, indicating there are minimal frictions for companies obtaining necessary materials.
LABOUR SHORTAGES: Global factory employment levels have been shrinking for several months and it appears that the growing labour shortage is now preventing global suppliers from completing orders as quickly. There was a rise in reports of factory backlogs rising due to inadequate labour supply in January.
TRANSPORTATION: Global transportation costs are increasing. In January, they rose to their highest level in six months.
Regional variations in the GEP Global Supply Chain Volatility Index
NORTH AMERICA: Index up to -0.22, from -0.53, a six-month high, suggesting a pick-up in procurement across the region at the start of the year.
EUROPE: Index down to -0.61, from -0.49, suggesting that activity levels across Europe’s supply chains remain weak.
UK: Index fell to -0.63, from -0.41 in December, a 13-month low and signalling a weaker outlook for 2025 for UK manufacturing.
ASIA: Index rises to 0.03, from -0.09, indicating that suppliers to the region are generally operating at full capacity.
How does the GEP Global Supply Chain Volatility Index work?
The GEP Global Supply Chain Volatility Index is a collaborative effort between S&P Global and GEP.
It draws from S&P Global's PMI surveys, which are distributed to 27,000 companies worldwide, a weighted aggregation of six sub-indices derived from PMI data, PMI Comments Trackers and PMI Commodity Price & Supply Indicators provided by S&P Global.
A positive value in the GEP Global Supply Chain Volatility Index indicates strained supply chain capacity, leading to increased volatility. The higher the value, the greater the strain on capacity.
Conversely, a negative value suggests underutilised supply chain capacity, resulting in reduced volatility. The lower the value, the greater the degree of capacity underutilisation.
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