‘Perfect Storm’: The supply chain crisis could derail the global economy | supply chain crisis

Everything was going fine. Successful vaccination programs were driving the post-pandemic recovery of the global economy, stock markets were back at record levels, and prices were rising enough to make deflation fears a thing of the past.

But the supply crunch that initially put a question mark over the availability of luxury cars or whether there will be enough PlayStations under our Christmas trees is instead turning into a full-blown crisis characterized by a lack of energy, labor and transportation from Liverpool to Los Angeles. From Qingdao to Queensland.

All the problems are somehow intertwined in the surge in consumer demand after the pandemic, but together they threaten what one prominent economist calls the “stagflation winds” that could derail the global economy.

Mohamed El-Erian, adviser to insurance giant Allianz and president of Queen’s College, Cambridge, says this week’s surprise Located in the factory production in China It was a clear warning that the global economy could slow down while prices were still rising rapidly, a doomsday double whammy that nearly plunged the UK into the 1970s.

“Supply chain problems are much more urgent than most policymakers expected, although companies are not much surprised,” he said. “Governments need to quickly rethink because the three elements – supply side, transport and employment – come together to blow the winds of stagflation through the global economy.”

The lack of power provides the clearest example of the problem, with the number of gas stations increasing in the UK Running out of fuelCities in northern China are forced to ration energy and force factories in the world’s number one manufacturing country to close only when pre-Christmas demand peaks in the West.

Both countries have struggled with not having enough reserves amid the worldwide scramble for natural gas and oil, which has nearly doubled in prices in 12 months to nearly $80 a barrel.

Combined with ongoing Covid-related restrictions in some large industrialized countries such as Vietnam, and well-documented shortages of components such as computer chips, factories are simply not producing enough.

A worker wears a protective mask at a Volkswagen assembly line
Volkswagen was among the automakers forced to close factories amid a shortage of semiconductors. Photo: Reuters

British car production fell 27% year-on-year in August due to a shortage of semiconductors and led to a significant reduction in the number of vehicles exported to Australia, the United States and China. On Thursday, Volkswagen, Ford and Opel makers Stellantis announced a new temporary shutdown in Germany due to the chip issue. Opel shuts down a plant until 2022 – the longest layoff yet.

In Japan, the finished goods inventory index has fallen to levels not seen even in the wake of the 2011 earthquake and Tsunami disaster.

But even if they could get more energy and materials, and factories could produce more goods, shipping things would still be more expensive. The Drewry Shipping Index, which measures the cost of containers, is top 291% compared to last year. On some busy routes, such as from China to Rotterdam, Europe’s largest port, the cost of shipping a container has risen sixfold in the past year.

The problems do not end when the goods arrive at a port with a shortage of labour, which is a final problem in the increasingly grueling products journey to their final destination. The shortage of truck drivers in many parts of Europe, partly due to disagreements over conditions and partly due to ongoing Covid restrictions, is causing delays.

The massive demand from pent-up consumers in the wake of the pandemic has strained the world’s delicately balanced economic ecosystem, says Flavio Romero Macau, a supply chain expert at Edith Cowan University in Western Australia.

Consumers are crazy about buying things because the world is awash with dollars in government incentives, high savings, and pent-up demand. “Playstations, laptops, phones, gym equipment — you name it, people are trying to buy them,” he says.

High demand and restricted supply equals inflation: there is no way out of it. You put all of those things together and it’s going to be a perfect storm.”

While Increased warnings of the risk of stagflationMore economists believe that central banks may have to move more quickly to raise interest rates if inflation spreads across the developed world.

Bank of England
The Bank of England has indicated that interest rates may rise next year. Photo: John Sibley/Reuters

The Bank of England flagged those rates Could go up next yearThe US Federal Reserve has finally signaled the end of a massive pandemic stimulus that could raise the cost of borrowing in 2022.

Neil Schering, chief economist at Capital economicsThe UK and US were most at risk of hyperinflation, he said, leading to the central bank’s move.

“Risks are generally tilted to the upside and there is a real possibility that inflation will rise to a much higher rate which, in time, will necessitate greater policy tightening,” he said.

A paradigm shift in monetary policy after years of cheap credit could be accompanied by a rebalancing of the global economy as countries seek to shorten supply chains and become more self-sufficient through more Self-sufficiency Policies that promote non-reliance on imports. Romero Macau believes that many companies could seize the opportunity to shift manufacturing away from China, where it began supplying cheap labor that triggered an economic miracle, to countries like Vietnam and Mexico. The cost of labor is cheaper than in China, he said, which makes it especially attractive for American companies.

The crisis has already prompted policy makers and business leaders to rethink, said Richard Flax, chief investment officer at Moneyfarm, director of digital wealth.

Large companies and governments audit their supply chains for commodities, taking into account supply security and cost. We expect to see a shortening of supply chains in some sectors as a response to Covid, either through re-supply, or as companies try to diversify their sources of supply.”

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