Supply chain bottlenecks impacting global economic growth

While the numbers are in expansion territory, a broad-based decline in manufacturing activity has been reported in developed and emerging markets.

What is even more worrying is that global growth is being hampered by severe disruptions in the supply chain. This was highlighted by a more significant increase in average seller lead times in August. In fact, the increase can be compared with the series record for June, the PMI report said. In addition, companies reported delays in transportation and lack of development of inputs and raw materials, it added. As a result, the output subcomponents fell in excess of the heading PMI for many keys. economies.

According to analysts at Nomura Financial Advisory and Securities Ltd, the spread of the delta variant amid still low vaccination rates in many ASEAN (Association of Southeast Asian Nations) economies and China’s zero-tolerance COVID strategy have prompted governments to impose sanctions and orders. Inspired to give. Factory/port closed. As a result, raw material shortages, port congestion and unavailability of containers have lengthened lead times, at a time when chip inventories are already running low, said a Nomura report on September 1. “

It should be noted that the delivery time sub-index component of the PMI’s suppliers declined in eight of the nine Asian economies in August and remained below 50. As Asia is a global manufacturing hub, supply constraints, if persist for a long period, do not bode well for global economic revival. In simple words, shortage of inputs and low inventory will result in production cuts and delay in shipments.

“The fall in China’s index to an 18-month low confirms that the outbreak in Asia and weakening demand are causing supply shortfalls,” said Jennifer McCain, head of the Global Economics Service at Capital Economics.

According to McCain, there is early evidence that the adverse effects of these shortages may have peaked as the index of suppliers’ delivery times and input prices have stopped rising. That said, they still remain at a high level. McCown cautioned that supply constraints would not be fixed fast.

Meanwhile, trade confidence among manufacturers fell to a 10-month low in August in the backdrop of supply crunch, which is not surprising. Economists say manufacturers have not lost hope as the sentiment index is above its long-term average. For now, stranded shipments should start moving faster for global growth to pick up.