Research Briefing | Jan 20, 2022

Global Coronavirus Watch: New hurdles for supply chains

After expanding strongly in Q2, global GDP growth slowed in Q3 in response to the Delta disruption and ongoing supply chain problems.

The sharp rise in global Covid cases due to the Omicron variant will dent the recovery in the near term. So far, though, the relatively lenient restrictions on activity imposed by governments during this wave suggest that economies may rebound quickly once cases fall back.

A key question is whether Omicron will slow the normalisation of supply chains. Disruption from staff absences due to illness should be quickly overcome. But China’s zero-tolerance approach to Covid may add to industry woes if a series of local shutdowns are needed to suppress Omicron there.

Even if major and lengthy additional disruptions from China are avoided, the speed of supply-chain normalisation could prove underwhelming even as major bottlenecks such as semiconductor shortages clear.

If other suppliers are unable to ramp up production as the original bottlenecks are unblocked, new binding constraints may emerge. Similarly, overordering of inputs that were in short supply along with new shortages of other components could quickly lead to a glut of semiconductors and other products that have been in short supply.

While we still think that supply chain pressures will ease from here, manufacturers are likely to face new obstacles and the path to normality won’t be smooth.

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