Global GDP Growth and its Impact on 2016 IC Market Growth

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The worldwide electronics industry is greatly influenced by consumer purchases of smartphones, PCs, automobiles, and many other devices and systems. The better the worldwide economy performs, the more money consumers will spend on electronic systems, which in turn creates a positive environment conducive to good IC market growth. For 2016, IC Insights is taking a conservative approach to worldwide GDP with forecast growth of 2.7%, which is only slightly better than the 2.5% global GDP growth in 2015. Some observations regarding worldwide GDP include the following.

- Average annual worldwide GDP figures have declined every decade since the 1960s with a slight rebound registered in the first six years of the current decade (Figure 1). Worldwide annual GDP growth has averaged 2.8% since 1980.

• Worldwide annual GDP growth rarely goes negative (the last negative worldwide GDP year before 2009 was in 1946) and rarely goes above 5.0% (with the usual associated surge in oil prices acting as a strong limiting factor).

• A worldwide GDP growth rate of 2.5% or less is considered by most economists to be indicative of a global recession, which puts 2015’s growth right at the threshold.  Prior to the late 1990s, when emerging markets like China and India represented a much smaller share of the worldwide economy, a global recession was typically defined as 2.0% or less growth.  The global recession threshold has never been a "hard and fast" rule, but the guidelines discussed here are useful for this analysis.

IC Insights depicts the increasingly close correlation between worldwide GDP growth and IC market growth in Figure 2.

As seen in Figure 2, the 2010-2015 correlation coefficient between worldwide GDP growth and IC market growth was 0.92, a very strong figure given that a perfect correlation is 1.0.  In the three decades previous to this timeperiod, the correlation coefficient ranged from a relatively weak 0.63 in the early 2000s to a negative correlation of -0.10 in the 1990s.

IC Insights believes that the growing number of mergers and acquisitions in the IC industry (discussed in detail in Section 3 of the new 2016 McClean Report) has resulted in fewer major IC manufacturers and suppliers and is just one of the major changes in the supply base that illustrates the maturing of the industry.

Other factors such as few, if any, new entry points for startup IC manufacturers, a strong movement to the fab-lite business model, and declining capex as a percent of sales ratios, are also indicative of dramatic changes to the semiconductor industry that are likely to lead to less volatile pricing and less volatile market cycles.