Disruption in supply chain hampers economic revival

Most of us have done it at least once. That is, hitting the reset button on the smartphone to shut it down and wipe out the virus. For better results, we’ve even tried deep clean or reboot, which restores factory settings, meaning the device is as good as new. Simple, really.

So, when Covid-19 struck last year, policymakers world over did pretty much the same thing. They hit the reset button, hoping, or rather praying, that lockdowns and subsequent lift offs will take things back to normalcy. In earnest, they even called it the Great Reset.

But the world economy isn’t your ordinary phone, and what seemed as a gradual and gentle recovery process, now appears to be spitting out problems of inescapable proportions. Foremost among the looming troubles is the global supply chain disruption, which could lead to an inventory recession, or slowdown global economic recovery. It appears, we cannot chicken out, and must face either one of the two. Worse, some even flagged doomsday scenarios, predicting price pressures morphing into stagflation, which then could throw the global economy off course. China’s dramatic slowdown last quarter places such forecasts right at the dead centre.

Supply disrupted

Among other things, the pandemic has put world trade at risk. Moody’s Analytics warned about ‘dark clouds ahead’ because several factors make overcoming the supply constraints challenging. The key culprits this time include labour, overstretched shipping lines, and rising raw material and logistics costs.

First, companies are facing shortages like labour, energy (remember coal shortages), and critical industrial components like computer chips for cars. Second, even if companies produce goods, shipping lines are so jammed that crossing an ocean from one end to another takes twice the pre-pandemic time or more. And lastly, even if goods make it in and out of shipping ports, some countries like the UK are facing a dire shortage of truck drivers delaying deliveries.