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Supply bottlenecks limit economic recovery: Fitch

20 Sep 2021

  • 2021 global GDP growth revised down to 6.0% 
The Global Economic recovery, despite still proceeding at a rapid rate, is hitting certain speed limits, states Fitch Ratings in its Global Economic Outlook – September 2021.  The unprecedented boom in consumer demand for durable goods observed during 2021 – particularly in the US where consumer durable spending is over 30% higher than pre-pandemic levels, following the US March stimulus – has stretched the capacity of global suppliers. As a result, the output expansion rate has been limited by supply bottlenecks, creating near-term inflationary pressures.  The supply of semi-conductors has proved to be a key bottleneck. The semi-conductor supply shortage has been exacerbated by a winter storm in Texas in February, which caused blackouts at NXP semiconductors, one of the major global phone and automotive chip makers; a fire in March at a semi-conductor plant in Japan operated by Renesas, which is one of largest chip suppliers in the automotive industry; and the closing down of several semi-conductor factories in Malaysia, following the national lockdown in August.  The resulting supply delays experienced by US manufacturers have reached levels not experienced since the 1970s. Car production, in particular, has been adversely impacted by component shortages, and what’s more, this supply shortage is expected to persist well into 2022.  Due to the impact of supply bottlenecks on global economic recovery, Fitch has revised down its expected global GDP growth in 2021 from 6.3% to 6.0%. Similarly, the US GDP growth forecast for 2021 has also been revised down to 6.2% from 6.8%.  Fitch has also lowered China’s forecast to 8.1% from 8.4%, as deleveraging dynamics in the property sector weigh on domestic demand. Forecasts for certain Asian economies have also been revised down following a pick-up in coronavirus cases and renewed restrictions.  However, Fitch has revised up the GDP growth in 2021 for the eurozone to 5.2% from 5.0% as progress with vaccine rollout is limiting the impact of renewed increases in Covid-19 cases on economic activity. Poland, Turkey, Mexico, Russia, and South Africa have also seen forecast upgrades.  As a consequence of the supply disruptions, near-term inflation pressures have intensified. This is reflected by the soaring cost of processed inputs for US firms, which is increasing at its fastest rate in over 40 years. The higher cost of production is being passed on to the consumer, resulting in the highest US core CPI inflation rate since the early 1990s. While the goods price inflation is expected to recede next year, the gradual increase in service inflation will prevent US core inflation from falling below 3% by end-2022.  Fitch Ratings’ Chief Economist Brian Coulton, commenting on the near-term inflationary pressures, stated: “These pressures should ease significantly in 2022 as demand growth moderates and supply responds. But price pressures are shifting the tone of the policy debate. Fiscal and monetary policy support for growth will start to wane next year.”  Accordingly, in the US, Fed tapering is expected to commence in November 2021 and two Fed hikes are anticipated in 2023. Similarly, the Bank of England is also expected to hike rates in 2023, and emerging-market (EM) monetary policy has seen a rapid about-turn.   Fitch Ratings further stated that peak global fiscal stimulus appears to be over and furlough schemes in Europe are being unwound. 

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