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Even though some supply chain tensions have eased recently, the
risks are rising again. Some sectors and countries are more
vulnerable due to materials and labor shortages and surging prices.
The Russia Ukraine war will further exacerbate supply chain
problems and will be further driving commodity prices. Sectors with
long global value chains, high dependency on energy and metals
supply will face highest headwinds, however, disruption of
transportation and risks to global trade rebound will likely have
broad-based implications for supply chains.
The Russian war with Ukraine will likely aggravate the labor
shortage and supply chain disruption leading to further price
increases at a time when EU is already facing the record high
shortages of materials and labor and soaring producer prices.
According to our supply side constraint vulnerability index
Hungary, Denmark, Finland Ireland and Germany are the most
vulnerable countries to supply side constraints. Countries in South
Europe and Romania are less affected.
Energy dependent sectors especially in oil refining and power
generation, transport services, basic metals and chemical
industries will be affected as Europe uses Russia as input
provider.
Production in automotive sector, various machinery and
equipment - sectors which also have one of the longest global value
chains (GVC) - semi-conductors and construction will be affected by
metal supply.
Delivery times and input price growth eased, but material and
labor shortages are at the historical highs in the EU in industry,
construction and services. According to the European Commission
Business Survey more than 50% of industrial companies in the EU are
facing such material and equipment shortage that they are limiting
their production. Shortages of labor and materials have also risen
significantly in construction. Moreover, the RussiaUkraine war will
also affect transportation and supply of raw material, such as
energy, food and metals, and have a negative impact on production
and prices.
We have developed a supply side constraint vulnerability index
that ranks countries in terms of their shortage of material and
equipment, overall capacity utilization levels, labor shortages,
and the strength of growth in producer prices. According to those
metrics Hungary, Denmark, Finland Ireland and Germany are the most
vulnerable countries to supply side constraints. Countries in South
Europe and Romania are less affected.
Supply side constraint vulnerability index
Some sectors are faced with extremely high
shortages
The most strongly affected industries are manufacturing of motor
vehicles, trailers, and semi-trailers; electrical equipment;
machinery and equipment; and computer, electronic, and optical
products as a majority of companies operating in those sectors are
facing high shortages. Germany and France have the highest share of
companies in those sectors reporting production-impeding
shortages.
The Russia Ukraine war will further exacerbate supply chain
disruptions through effect on the availability of transportation
and prices of inputs. The Russian war with Ukraine has already
resulted in soaring energy prices, and has affected the prices of
metals and agricutural commodities, for which Russia and Ukraine
are important players. Europe uses Russia as an input provider,
especially in oil refining and power generation, transport
services, basic metals and chemical industries.
Judging from input output tables data, industry in Emerging
European economies is more dependent on oil and gas imports coming
from Russia than other countries in the EU. A 40% shortfall in oil
and gas import from Russia would result in highest output losses in
Bulgaria, Lithuania and Slovakia. Bulgaria is most vulnerable due
to its large basic metals sector as well as utility generation and
refined petroleum sectors depending on imports from Russia.
Russian power crunch - Impact on EU+UK: Major contributions
to total output loss
Rising prices and possibly lack of those commodities could
distort not only energy supply, but also that of metals, which are
important for the production in automotive sector, various
machinery and equipment - sectors which also have one of the
longest GVC's - semi-conductors and construction.
The shock for European businesses will naturally not only be on
Russian input availability. Rising energy and other raw material
prices, combined with higher labor costs, will put upward pressure
on costs at large (through shipping, storage, electricity) and
demand. This development is likely to limit the rebound of global
trade and further aggravate the disruptions in global value
chains.
Finally, transportation costs will be affected by sharp increase
in fuel costs. The sanctions will result in delays due to
intensified controls and longer routes due to boycott of Russian
ports and closure of Russian airspace. The sector will also face
labor force shortages as Ukraine and Russia account for 275
thousand of the world's 1.9 million seafarers. This, together with
high fuel prices, is adding to rapidly rising costs, rising port
congestion and reduced capacity.
Gloomier demand outlook and higher interest rates dampened commodity prices last week. Insights from our #MPI:… https://t.co/uUPkt1MWzP
May 13
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