It was not so long ago that the first steps were being taken out of the global pandemic as far as global supply chains were concerned. There was optimism that production and transport, whilst still proving problematic, would recover. The reality of the situation is now looking much worse than hoped for with global goods markets looking far more likely to see continued problems well into next year. Predictions of recovery are now becoming more pessimistic.
These new predictions are evidenced by a number of more recent reports. Supply-chain disruption was chief among the factors underpinning the International Monetary Fund’s (IMF’s) downgrade of its 2022 global economic growth forecast by another half per cent from January this year to October.
Another piece in this jigsaw is that the so-called transitory inflation phenomenon has been replaced with longer-term inflationary pressures.
It means that accelerating inflation, which many believed to be a transitory phenomenon just a few months ago, is unlikely to disappear anytime soon, given the supply-chain disruptions companies face, thus slashing production and hiking prices in response. “We went into this year across our entire portfolio—without this conflict in mind—knowing that we were facing commodity price increases [and] shortages,” Joseph Wolk, chief financial officer at pharmaceutical company Johnson & Johnson, told an investment conference in early March. “So, we had a very healthy level of inflation or cost increases built into our plan. That’s probably gotten a little steeper over the last couple of days.”
And economic activity is now looking like it will deteriorate further before improving. A survey conducted by management consulting firm AlixPartners in December found that supply-chain issues were the biggest concern of the 3,000 chief executive officers polled. This was followed by stresses on the labour market with more shortages. “They realized that their business models, which have served them well for many years, are largely now not fit for the purpose” and that they’re rushing to build local, regional and global supply chains, according to AlixPartners CEO Simon Freakley. “We went from what was a rolling sea of worry about economic cycles to a choppy sea of all these disruptive forces.”
Moody’s takes the same view – that supply chain problems will continue beyond 2022. “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,” Moody’s associate director, Tim Uy, stated in a Moody’s report in October. “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.”
In addition, bottlenecks will appear out of the blue that includes problems, not just with staffing levels – but with shipping containers, shipping ports, trucks, railroads, airports and warehouses.
Every country in the world is now being affected by the global supply chain problem. And whilst it appeared to be resilient during the pandemic, it certainly showed signs of great stress as lockdowns came to an end and demand shot up. Getting it back to normal will be some sort of task. Perhaps a predicted global recession will provide the (unwelcome) break in demand that will see these supply chains recover.