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Trade credit insurer Euler Hermes said global supply chain disruptions could continue until the second half of next year.
Euler Hermes cited new virus outbreaks, China’s zero-Covid policy and expected trade volatility during the Lunar New Year.
Measures to contain Covid-19 could affect manufacturing and shipping operations, exacerbating the supply chain crisis. Analysts have previously warned that the new variant, omicron, could deal another blow to the supply chain.
Euler Hermes economists write that a production shortage is responsible for 75% of the current contraction in global trade volumes, while logistical bottlenecks are responsible for the remaining 25%.
But this supply chain chaos is likely to ease in the second half of 2022 for three reasons, the report’s authors add.
1. Consumer demand has peaked
Consumers are likely to continue buying at a higher rate, but the insurer says demand has peaked.
The report notes that while excess savings accumulated during the pandemic have not been exhausted, demand will normalize gradually.
The dramatic shift in household spending towards (durable) goods rather than services, amid curfews and closures, will become much more muted going forward, the report said. even in the negative scenario of a new Covid-19 outbreak,” the report said.
Especially in advanced economies, households are moving towards sustainable consumption and the cycle of replacing goods purchased during the pandemic is at least a couple of years, Euler Hermes added.
With the need to undergo “self-regulatory normalization”, supply chains are likely to come under less pressure.
2. Inventories return to pre-Covid levels
After reducing inventories in early 2020, manufacturers rushed to resupply to cope with an unprecedented recovery in demand, the report said.
“The good news is that the urgency to resupply has clearly peaked over the past months … and inventory levels have been well above the pre-crisis long-term average in most sectors,” it said.
Euler Hermes also observed more capex in the US, which would help increase production capacity to meet higher demand. By comparison, Europe is relying on “above-normal capacity utilization rates” to produce more.
The authors write: “We see the potential to catch investment in Europe by 2022 (and subsequently in production capacity), with favorable financing conditions and corporate cash positions strengthened. Advanced.
Without an increase in production capacity and investment in port infrastructure, the normalization of supply bottlenecks in Europe could be delayed beyond 2022 due to demand, the report adds. is still above potential.”
3. Increased transport capacity
According to the insurance company, traffic congestion will also be less severe in the second half of 2022 due to increased transportation capacity.
Shipping costs are likely to remain elevated next year, but capacity will grow as global orders for new container ships hit a record high, amounting to 6.4% of the existing fleet, Euler Hermes said. .
“New shipping capacity orders are growing rapidly … coming online by the end of 2022, which will significantly reduce congestion in shipping,” it said.
About $17 billion is also expected to be spent on port and waterway infrastructure in the US, which will help reduce congestion, the report said.
Global trade growth
The report also predicts that global trade volume will grow by 5.4% in 2022 and 4% in 2023, following growth of 8.3% in 2021.
But the trade imbalance could get worse. The forecast by Euler Hermes shows that the US will have a record high trade deficit, while China will report a record high trade surplus.
Over the next few years, Asia-Pacific will continue to be the main winner in terms of exports, while the energy, electronics, machinery and equipment sectors will continue to outperform in 2020. 2022.
– Weizhen Tan of CNBC contributed to this report.
