The Disruption of the Supply Chain to Affect Global Supply

Against the backdrop of new outbreaks of the global pandemic, the disruption of the global supply chain is likely to remain an issue until the second half of 2022.

FREMONT, CA: In the global volume of trade, production shortfalls are behind 75 percent of the current contraction. Against this backdrop, though a soft recovery in Q4 2021 is anticipated, there is also a risk of a double-dip in Q1 of 2022 as volatility in trade flows ought to maintain the standard until the spring. It is anticipated that the following factors are likely to drive the normalization of the trade: a curtailment of consumer spending on durable goods due to their longer replacement cycles and the drive towards sustainable consumption behaviours. In most of the sectors, less acute input shortages as inventories have returned to or even surpassed the pre-crisis levels and the capital expenditures have increased mainly in the US.

Exports propose a VAR model based on global demand along with the logistical conditions employed. However, from analyzing deviations of the basic forecast, demand shocks contributed to most of the positive growth to global trade growth in July 2020. At the same time, supply made a magnanimous positive influence since the summer of 2020, unfortunately, due to COVID-19 shocks, the supply chains have become quite unpredictable. Moreover, supply and logistics factors have contributed to the recent unexpected drop in global trade.

As per the forecast, the following factors are expected to determine the normalization of trade at the beginning of next year. Consumer demand is expected to continue high due to excess savings generated by restoring stocks to pre-crisis levels in most cases and reducing traffic congestion as capacity grows.

 The excess savings at the time of crisis is expected to last till 2023 which has led to an increase in consumer demand and also this trend is likely to remain. Nevertheless, the demand for global trade is likely to stay high in 2022, gradually normalising on its own. This is mostly due to fiscal incentives enacted in response to the pandemic, which favoured demand oversupply, particularly in industrialised nations where governments have provided fiscal incentives totalling around 25 percent of GDP.