Global supply chain disruptions to peak next month: Report

A survey conducted by the Oxford Economics that covered the 45 countries that account for the 90% of the global GDP showed that Global supply chain disruptions that have negatively impacted economic growth will peak by the end of this year and will mostly ease by the end of the next year, writes ETV Bharat Deputy News Editor Krishnanand Tripathi.

New Delhi:Global supply chain disruptions that have negatively impacted economic growth will peak by the end of this year and will mostly ease by the end of the next year, showed a survey conducted by the Oxford Economics that covered the 45 countries that account for the 90% of the global GDP.

The survey showed that the global shipping rates have started to decline from early this month on a month-on-month basis and industries are able to rebuild their inventories, a clear sign of easing supply bottlenecks across the globe. However, the chip-shortage will continue to impact countries like Germany and Japan that rely on the automotive sector.

“Global supply-chain disruptions will peak this quarter, according to our country experts,” said Tim Hunter, an economist at Oxford Economics.

Hunter said the survey that covers the economies accounting for 90% of the world GDP showed that all respondents saw supply chain issues hitting economic growth, with some economies dependent on the automotive sector experiencing the most severe impacts.

“Impacts peaking this quarter chimes with tentative signs in hard data of disruption now easing. Global shipping rates have declined in early November, and our global indices of inventories show that, while they remain below historical norms, stocks are being rebuilt in many industries,” he wrote in the report.

According to researchers at the Oxford Economics, global supply chain disruptions that were mainly triggered by the outbreak of a new and more virulent variant of novel coronavirus, named Delta variant, should mostly ease by the end of next year.

They, however, warned that the risks remain and are tilted to the downside.

Material shortage impacting global growth

The survey also showed that these global supply chain disruptions were mostly a result of material shortage rather than labour shortage.

According to the report, these shortages have been plaguing industries and consumers globally for much of this year as supplies struggled to keep up with the rapid pace of the recovery in demand, which was mainly goods focused as many service sectors such as tourism, travel and hospitality sectors remained affected due to Covid-19 related restrictions.

The report said assessing the severity of these problems on a global scale was a difficult task given the multitude of factors affecting different industries and economies.

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“Our results found that almost all see disruption having already peaked or about to peak this quarter, their view tallying with tentative signs in some industries of problems now easing,” Tim Hunter said.

He said on a GDP-weighted basis, almost all the economists at the Oxford Economics, either saw supply-chain disruptions either peaked in the current quarter (October-December period) or have already peaked.

Most of the economists believe that these disruptions will be over by the end of the next year. They said these disruptions have already ended for the countries representing 20% of the world GDP.

Signs of easing bottlenecks

The researchers at the think tank said their expectation of the supply chain problems peaking globally this quarter corresponded with the tentative signs of easing in data, with the HARPEX global shipping rates index declining on the month in early November, and their own calculations showing that global inventories have improved relative to demand in most sectors in the data available to August.

Chip-shortage impacts automobile production

Their research showed that the supply chain problems affected every economy surveyed by them but a few of them, representing 10% of the global GDP, were affected severely.

These included countries such as Germany and Japan, where the automotive sector was hit hard by the semiconductor shortage. In India also, some automakers, such as Maruti-Suzuki and Mahindra Group, suspended vehicle production due to the chip shortage.

However, there were positive signs for the automotive industry as global chip sales started to trend upwards and some carmakers planned to scale up production in the fourth quarter.

The survey said there will be steady relief from disruptions over the next year but the risks cannot be discounted.

“Nearly all of our country experts expect disruption to ease by July-December in 2022, as businesses rebuild inventories, temporary supply setbacks from lockdowns dissipate, and demand continues to rotate away from goods as economies continue to reopen,” it said.

“But further supply-chain disruption remains a key downside risk to our baseline, with our economists citing materials shortages as the greatest single source of risk and labour shortages mostly being cited as being mixed with other issues,” said the economists.

Supply chain disruptions threat to global economy

The report also highlighted the impact of global supply disruptions on the business sentiment as reflected in the Global Risk Survey conducted by the think tank that found that businesses had become more pessimistic on economic prospects over the past month.

Persistent supply-chain disruptions are seen as the greatest short-term risk to the global economy.