Asia supply-chain disruptions easing but challenges remain
Following an easing in restrictions, Asia production is ramping up to meet strong global demand for consumer goods, auto parts, and electronics. While capacity will remain tight, the efficiency Asia’s ports (including 24/7 operations) means there’s scope for production increases to be moved rapidly through logistics chains across the region. The upturn in production should help ease global supply-chain bottlenecks heading into 2022. But port logjams in the US and Europe mean delays will remain significant, and we expect global freight rates to remain high into H1 2022.
What you will learn from this report:
- Asia production has periodically been impacted by Covid outbreaks, most recently in Q3. The downturn in production affected already fragile supply chains, notably in electronics and automobiles. But with manufacturing recovering, pressures should diminish on the more complex segments of global supply chains in 2022, which in turn will allow supply to meet demand for key consumer products.
- Logistical challenges remain, as container ship demand is outstripping supply. But the relatively high levels of efficiency in Asian ports and increases in intra-Asia shipping capacity mean we do not expect the current ramp-up in Asia production to lead to an increase in regional logistical blockages.
- While welcome, these improvements won’t resolve chokepoints in the US and Europe. And, while the worst may be behind Asia, we don’t expect a full easing of disruptions before H2 2022. Afterwards, as consumers pivot back towards spending on services, global demand for shipping and freight rates should ease.
- Supply chains remain vulnerable to pandemic-related disruptions, with the Omicron variant highlighting that the crisis is not yet over. We estimate that if supply-chain disruptions prove more persistent Asia GDP growth could be 1.6ppt lower next year..
Firms must brace for higher ‘new normal’ construction material prices
New research by Oxford Economics suggests that construction materials prices have shifted permanently higher due to the shocks of the past couple of years. Project managers and investors should anticipate costs being at least 15-20% higher in 2024 and onwards than in 2021.Find Out More
New Activity Trackers suggest momentum is waning
After a choppy first quarter of GDP data, our novel Activity Trackers (which incorporate proprietary daily sentiment data from Penta) suggest that economic momentum in EM Asia is on a softer trend in Q2 (at least outside of China) supporting our view of easing underlying inflationary pressures and diminishing appetite for further rate hikes.Find Out More