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Problems in the global supply chain are likely to continue for years, the International Monetary Fund (IMF) fears. This issue is also causing further inflation and undermines the recovery from the coronavirus pandemic.
Half of inflation caused by stock issues
The supply problems nearly every sector has been struggling with since the autumn are potentially lasting until 2023, the IMF says in a new report. At the end of last year, the IMF still expected car shortages to be largely resolved by mid-2022 and that other bottlenecks would be gone by the end of this year, but the omikron variant has put a spanner in the works.
Even if no new difficulties arise, it will still take time before everything gets straightened out. The Covid pandemic caused people to buy more goods than services, the IMF explains, but factories have not been able to keep up. Shortages of everything from chemicals to microchips and new lockdowns caused factory recovery to stagnate. Consumer goods prices rose rapidly, and shipping times reached record highs, triggering high inflation.
Had there been no supply problems, the eurozone would have produced about 6 % more in the autumn of 2021, and this lag is starting to show. The IMF attributes half of all consumer goods price inflation to supply disruptions, the other half to sharply higher demand pushed by the pandemic. Only the prices of services, which account for more than half of the average household spending, are less sensitive to price shocks.
Workforce and infrastructure are lacking
The difficulties will not simply vanish along with the coronavirus, either. There are still several structural problems within the world economy: 10 % of all supply difficulties are due to labour shortages, and a large part of the problems are simply due to outdated logistical infrastructures. These problems may have more persistent consequences than temporary Covid closures, the IMF warns.
However, there also is good news: as soon as the pandemic fades away, inflation should fall back slightly below the European Central Bank’s objective. Moreover, employers need not fear: despite the shortages in the labour market, wages should increase only moderately. However, efforts to attract new workers (advice to governments is to ease migration rules and improve child and elderly care) and targeted fiscal measures are urgently needed.
