‘A perfect storm’ supply chain crisis could blow world economy off course

It was all going so well. Successful vaccination programmes were driving the post-pandemic recovery of the global economy, stock markets were back at record highs, and prices were rising just enough to make deflation fears a thing of the past. But a supply crunch that initially put a question mark over the availability of luxury cars or whether there would be enough PlayStations under our Christmas trees is instead morphing into a full-blown crisis featuring a shortage of energy, labour and transport from Liverpool to Los Angeles, and from Qingdao to Queensland. All the problems are in one way or another tangled up in the surge of post-pandemic consumer demand, but taken together they threaten what one leading economist calls a “stagflationary wind” that could blow the global economy off course. Mohamed El-Erian, and adviser to the insurance giant Allianz and president of Queens’ College, Cambridge, says this week’s surprise fall in factory output in China was a clear warning that the world economy could slump while prices were still rising quickly, a doomsday double whammy that almost sank the UK in the 1970s.“The supply chain problems are much more persistent than most policymakers expected, although companies are less surprised,” he said. “Governments are having to rethink quickly because the three elements – supply side, transport, labour – are coming together to blow a stagflationary wind through the global economy.”Energy shortages are providing the starkest illustration of the problem, with increasing numbers of petrol stations in the UK running out of fuel, and cities in northern China having to ration power and force factories in the world’s number one manufacturing nation to shutter just when pre-Christmas demand is reaching a peak in the west. Both countries have been caught out by not having enough reserves amid a scramble throughout the world for natural gas and for oil, which has almost doubled in price in 12 months to nearly $80 a barrel. Along with ongoing Covid-related restrictions in some large manufacturing countries such as Vietnam, and a well-documented shortage of components such as computer chips, factories are simply not producing enough. British car production dropped by 27% year on year in August as a lack of semiconductors and led to a big drop in the number of vehicles exported to Australia, the US and China. On Thursday, Volkswagen, Ford and Opel maker Stellantis announced fresh temporary closures in Germany because of the chip problem. Opel is closing a plant until 2022 – the longest such stoppage so far. In Japan, an index of stocks of finished goods has dropped to levels not even seen in the wake of 2011 earthquake and tsunami disaster. But even if they could get their hands on more sources of energy and materials, and factories could make more goods, it would still cost more to ship things. Drewry’s shipping index, which measures the cost of containers, is up 291% compared with a year ago. On some busy routes,


All data is taken from the source: https://www.theguardian.com/
Article Link: https://www.theguardian.com/business/2021/oct/02/supply-chain-world-economy-energy-labour-transport-covid


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