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Macroscope
OpinionComment
David Brown
David Brown

Macroscope | The global supply chain crisis isn’t as bad as it looks

  • If 2021 marks the year of the supply chain crisis, 2022 could easily end up as the year of oversupply
  • Amid volatile inventory cycles and uncertain demand conditions, central banks must be careful not to upset the markets with gratuitous rate hikes

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Container ships dock at the congested Port of Los Angeles, in San Pedro, California, on September 29. Manufacturing capacity constraints, extended delivery times and labour shortages are causing hiccups in the global supply chain, but there may be light at the end of the tunnel. Photo: Reuters
David Brown
While it is often claimed that every dark cloud has a silver lining, it has been hard to put a positive spin on the world as it emerges from the Covid-19 pandemic, beset by supply-side worries and growing doubts about the inflation outlook. But it is time to start looking to the future and thinking more constructively about the post-pandemic world in 2022, with the global economy getting back to business as usual.
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Central banks have been accused of sitting on the fence, but patience may prove a virtue in the present circumstances. There’s a good chance of sustainable recovery being achieved, but growth prospects still need nurturing and the last thing the global economy needs is gratuitous, over-reactive interest rate hikes.

Output and prices are both witnessing volatility on the return to normality and central banks have a duty to ensure they don’t add to the instability. If 2021 has marked the year of the supply chain crisis, 2022 could easily end up as the year of oversupply, with inflation expectations moderating quite sharply. Central banks must tread carefully.

Supply-chain constraints have been weighing heavily on the global economic mood but this could change quite dramatically in the coming months. Judging by the positive way that global equity markets are moving, they may already be ahead of the game in anticipating better times.

The next phase of the supply chain crisis could easily be too much of everything as manufacturers respond to the shortages by stepping up production. It’s the logical reaction, and basic economics: supply falls short of what’s needed, prices rise and producers respond by boosting output to cash in.

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Instinctively, manufacturers see a market opportunity and step in to fill the gap. While short-term lags are causing temporary supply chain disruptions, these will eventually disappear.

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