Supply disruptions hurt global economic recovery

Supply disturbances, mainly characterized by supply chain blockages and breaks, are not only the main cause of the previous global economic recession, but also the main problem that undermines the current global economic recovery. The supply disturbance had already appeared before the outbreak of the epidemic, and the spread of the epidemic caused its overall deterioration, and the conflict between Russia and Ukraine made it even worse. The future recovery prospects are not optimistic.

In the context of economic globalization, market players focus on the pursuit of efficiency, and based on the basic principles of the lowest cost, the highest profit, low inventory or even zero inventory, the global layout of a refined, complex and long supply chain is formed. Stability and security bury hidden dangers, and there is even the possibility of being eroded by various viruses. The first thing that erodes the global supply chain is the “political virus” or “American virus”, especially after Trump took office, the “industrial return” and “localization” led by the United States and the forced “decoupling” and “broken chain” against China, This has led to supply chain disruptions of varying degrees in important global industries and their important links. Japan’s forcible “cutoff of supply” against the South Korean semiconductor industry for political reasons can also be regarded as a “Japanese variant” of this “American virus”. The second is “coronavirus”. In order to prevent the global spread of the new crown virus, various countries have generally adopted “big blockades” of different degrees and methods, resulting in serious obstruction of cross-border flow of people and logistics, and serious difficulties in connecting the global supply chain; And internal “sealing and control” has made it difficult for personnel to arrive at their posts, raw materials and parts are difficult to be in place, and many companies have to suspend production, which in turn leads to a serious shortage of supplies, making the already broken supply chain even worse.

Russia and Ukraine occupy an important position in the global supply chain, especially in energy, strategic resources and food supply chains, their positions are even more pivotal and even irreplaceable. Russia accounts for 1/8 of global oil production and 1/6 of natural gas production, and is the world’s second and largest exporter, respectively. Russia also dominates key strategic mineral resources such as titanium, palladium, neon, nickel, and aluminum, which are vital to important industries such as military industry, aerospace, aviation, navigation, chips and electronic components, and automobile manufacturing. Russia and Ukraine are also the most important “granaries of the world”, accounting for 28.5% and 18.6% of global wheat and corn exports, respectively. After the outbreak of the Russian-Ukrainian war, the sanctions and countermeasures around Russia have intensified, which has caused a huge impact on the global supply chain, including the removal of it from the International Funds Clearing System (SWIFT), which has led to difficulties in international trade settlement, and the mutual closure of airspace has led to the interruption of international air transport. Russia and Ukraine’s Asia-Europe land and sea transportation has been blocked, and important enterprises in the two places have stopped production and even evacuated. In particular, it is worth noting that the “chip shortage” caused by the epidemic has had a serious impact on the global automotive, semiconductor and other industrial chains. As the most important raw material for chip manufacturing, neon gas, Russia and Ukraine, account for 70% of the global output!

In the 1970s, the oil crisis triggered the rupture of the global supply chain that was heavily reliant on low-priced oil, and a series of chain reactions that followed led to the “stagflation” dilemma of stagnation and inflation coexisting in the Western economy. The current intensifying supply disturbance is increasing the risk of the global economy falling back into “new stagflation” from two aspects. On the one hand, supply disturbances have led to disorder or even paralysis of the global production system, severely hindering global economic recovery and growth, and the global economic recovery has become increasingly stagnant. Recently, major international organizations have successively lowered their global economic growth forecasts by a large margin. For example, the International Monetary Fund lowered its 2022 global growth forecast by 0.5 percentage points in January, and further lowered it by 0.8 percentage points in April. The June forecast just released by the World Bank lowered the global growth rate in 2022 by 1.2 percentage points from its January forecast. On the other hand, supply disturbances have led to a serious shortage of supply in the global market. While governments have adopted heavy-volume stimulus for economic recovery, demand has expanded, and price levels have risen sharply. The data just released by Eurostat showed that the euro zone inflation rate was as high as 8.1% in May, a new record high; the US CPI inflation rate in March was as high as 8.5%, the largest increase in the past 40 years.

First, the repeated outbreak of the epidemic has led to the uncertainty of the epidemic prevention policies of various countries, and its impact on the global supply chain is difficult to completely overcome in the short term. Second, when the war between Russia and Ukraine will be brought under control, the prospects are not optimistic. Even if it ends in the short term, the sanctions and countermeasures against Russia and their impact on the global supply chain will be difficult to calm down immediately. The third is the serious erosion of the global supply chain by the “political virus” or “American virus”, and there is still no sign of a cure in the near future. Biden’s recent visit to Japan officially launched the long-awaited “Indo-Pacific Economic Framework”. One of its four pillars is euphemistically called enhancing the “resilience” of the supply chain, but the essence is to promote the “broken chain” with China, while China It is also in the center of the global supply chain. If the chain is “broken”, the consequences can be imagined. The fourth is the “self-reinforcing” effect of supply disturbances. Supply disturbances have forced countries to pay attention to the security of their own supply chains. For this reason, the localization and “near-localization” measures of supply chains have increasingly had a serious impact on the layout of the global supply chain formed in the era of globalization, which has further intensified the supply chain. perturbation. The “Economic Security Promotion Act” just passed by Japan recently, its core content is to ensure the supply security of “specific important materials”, which will have a serious impact on the layout of the global supply chain.

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