Experts Say Global Supply Chain Disruptions Will Hinder Future Growth
When the COVID-19 vaccines were released in early 2022, many predicted that by the end of the year normalcy would have returned to the global economy — and by extension the global supply chain. This has not been the case. In fact, as the economy gradually opens back up, disruptions within the supply chains appear to be becoming even more common and dire.
The core driver of the issues has been demand. Although supply chains were hindered by the shutdown of 2020, consumer demand was so small that, despite the myriad of COVID-19 problems facing the public, supply chains remained relatively stable. The issue, however, is that demand has escalated so rapidly through 2021 that supply chains did not have time to recover from issues such as worker and raw material shortages. As a result, manufacturers and distributors are struggling to receive sufficient inventory from suppliers.
Additionally, this strain has also highlighted several pain points in the global supply chain that were already present but were somewhat overlooked in recent years before the pandemic. U.S. ports, for example, have long been highlighted by elements as inefficient and in desperate need of modernization in order to remain competitive on a global scale. The declining number of truckers has also been long cited as a growing concern, and COVID-19 related lockdown only exacerbated what was already a growing trend.
And then there is the issue of just bad timing. 2021 has seen several unanticipated issues that have taken the COVID-19-related disruptions to a different level. These include natural disasters, power shortages in critical supply chain hubs such as China, ongoing issues related to the United Kingdom’s departure from the European Union, and more.
With all of these factors in play at once, the future of the global supply chain and economy must be looked at with concern, many experts claim.
“As the global economic recovery continues to gather steam, what is increasingly apparent is how it will be stymied by supply-chain disruptions that are now showing up at every corner,” said Tim Uy of Moody’s Analytics. “Border controls and mobility restrictions, unavailability of a global vaccine pass, and pent-up demand from being stuck at home have combined for a perfect storm where global production will be hampered because deliveries are not made in time, costs and prices will rise, and GDP growth worldwide will not be as robust as a result.”
One silver lining however, is that while disruptions are anticipated to continue, some issues may be resolved sooner rather than later. Semiconductor inventories, for example, according to analysts, are anticipated to recover by Q2 2022. This, however, is dependent on several factors remaining stable, such as COVID-19 variants. With the recent emergence of the Omicron variant, this is hardly a given.
In preparation for these short-term struggles, the report emphasizes the need for solutions to provide guidance into 2022. “In general, supply chain disruptions and higher input costs seem likely to be relatively transitory,” said Kristina Hooper, global chief market strategist for Invesco. “And so, for me, I’ll be paying close attention to this quarter’s earnings season, but I’ll be most concerned about companies’ guidance for the fourth quarter and beyond — especially how long they expect these conditions to last.”