China’s decision to curb the production of Omicron has caused a domino effect in other countries. The USA and Europe are now experiencing similar, yet milder supply constraints. But sources warn that further shifts can be expected as China opens up new markets
As 2021 came to a close, factories in Europe and the United States reported a further easing of supply-chain issues and accompanying cost hikes, however the fast growth of Omicron throughout the globe threatened to exacerbate labor and supply constraints.
Since the end of 2020, factories all across the globe have been experiencing shortages. At a time when shipping and other areas of the logistics network were in chaos, a spike in demand for commodities like computers and bicycles caught many people off guard.
These shortages have slowed growth and contributed to a rise in consumer price inflation. Central banks across the globe are expecting that these issues will subside this year as demand for products stabilizes and supply expands, allowing them to lower inflation rates without raising key interest rates much.
According to purchasing managers’ polls, in the closing months of last year, there were some indications of a minor easing of bottlenecks as Asian factories reopened after pandemic-related lockdowns.
However, if governments impose further lockdowns or quarantine restrictions deprive factories and logistical networks of critical labor, the fast spread of the new Omicron version of Covid-19 threatens to cause significant obstacles.
Despite the easing of supply concerns, business activity in the United States and Europe grew at a somewhat slower pace throughout the month. According to statistics company IHS Markit, the US purchasing managers index for manufacturing slipped to 57.7 in December from 58.3 in November, the weakest rate of growth in 2021.
The same indicator in Europe fell to 58.0 from 58.4, its lowest level in ten months. Readings over 50 suggest increased activity, while readings below 50 indicate decreased activity.
According to data company IHS Markit, industries on both sides of the Atlantic indicated that supply shortages had improved considerably in December, although Omicron was still acquiring a foothold throughout the continent.
In the United States, input delivery delays have improved the most since May, although they are still widespread. Input cost increases also fell to their slowest rate in six months.
Customers put off placing new purchases while working through existing inventory, according to companies in the United States.
“While shortages remained severe, there were some hints that cost pressures were easing towards the end of the year,” said Siân Jones, senior economist at IHS Markit.
According to the business, European factories reported fewer bottlenecks for the second month in a row.
“We’re seeing some cautious, but very positive indicators that the supply chain issue that has afflicted manufacturing lines throughout Europe is starting to fade,” said Joe Hayes, an economist at IHS Markit.
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Factories in the eurozone also reported the slowest growth in input costs since April 2021, while also announcing the smallest pricing hikes in four months. Manufacturers, on the other hand, continued to have doubts about their capacity to get essential inputs swiftly, and they built up their inventories at the quickest pace in the survey’s 24-year history.
In November, eurozone consumer prices surged at their quickest rate on record, and the European Central Bank warned last month that it does not expect inflation to return to its objective of 2% until considerably later in 2022 than originally expected. As a consequence, the central bank increased its inflation predictions for this year from 1.7 percent to 3.2 percent.
Last month’s spread of the Omicron variety, according to ECB President Christine Lagarde, contributed to the outlook’s uncertainty.
“It may have a dampening effect on demand because people would spend less; people will travel less; people will be restricted,” she added, “but it may also have an influence on supply.”
Despite the improvement in supplies, firms reported somewhat slower increase in activity this month, with the manufacturing Purchasing Managers Index dipping to 58.0 from 58.4, the lowest level in ten months.
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The buying managers’ polls are consistent with other supply chain bottleneck indicators. Container transportation costs have progressively decreased since their peak in early September, albeit they remain much higher than pre-pandemic levels.
Taiwan, a major supplier of semiconductors to manufacturers of a broad variety of electronic products throughout the globe, saw supply concerns alleviate as well, while other Asian manufacturing hubs experienced little relief.
Indian industries, like their South Korean counterparts, experienced the greatest increase in waiting times since 2000. South Korean firms claimed that obtaining inputs had slowed growth and increased backlogs, but they also recorded the first dip in export orders since September 2020, which they ascribed to growing Covid-19 infections in important outside markets.
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