What's Happening?
Supply chain disruptions are creating headwinds for the global economic recovery, with strains in production networks emerging due to imbalances between supply and demand. Difficulties in logistics and transportation, semiconductor shortages, pandemic-related restrictions, and labor shortages are key factors. Global shipping has been disrupted by container misplacement and congestion, exacerbated by rapid economic recovery and high import volumes. Semiconductor shortages, particularly in the automotive sector, have been pronounced, with chip production unable to meet demand due to underinvestment prior to the pandemic.
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Why It's Important?
Supply chain disruptions have a negative impact on global industrial production and trade, while contributing to inflation. These disruptions account for around one-third of the strains in global production networks, affecting delivery times and prices. The impact is more pronounced in the producer price index than in the consumer price index, as producers are more directly exposed to disruptions. The effects vary across countries, with the United States experiencing greater impacts on trade and industrial production.
What's Next?
Supply chain disruptions are expected to improve gradually in the second half of 2022, although uncertainty remains high. Semiconductor production requires significant investment to increase capacity, with improvements expected later in 2022 or 2023. Labor shortages may ease depending on government support and pandemic containment measures. Shipping costs remain high, with survey-based information suggesting difficulties will persist throughout 2022.
Beyond the Headlines
The new Omicron variant has reignited concerns about further supply-side disruptions, potentially leading to localised closures and further production and shipping disruptions. New containment measures may trigger a shift in consumer demand from services to goods, exacerbating supply bottlenecks.
