Supply problems, labor shortages and inflation. More than 18 months after the onset of the global recession linked to the Covid pandemic, the economic recovery continues but remains heterogeneous: the recovery benefits exporting countries, while service-centric economies lag behind. Despite a positive outlook, there are increasing signs that the global recovery is losing momentum. The effects of the pandemic at critical points / links in supply chains have generated supply disruptions, fueling price pressures and affecting the production and sales of manufacturers around the world. Supply problems, labor shortages and inflation, along with the persistent threat of Covid-19, add to the list of risks and uncertainties. The photograph taken by Coface – one of the reference points in credit insurance and related specialized services – and contained in the third quarter Barometer released by the French company is an overall positive picture but with many stumbles on the road to recovery.
Upward valuations
Taking into account the continuation of the recovery, Coface revises risk assessments upwards for 26 countries, including Germany, France, Italy, Spain, Switzerland and Belgium. The increase in exports of manufacturing products to advanced markets is leading to an improvement in the valuations of the exporting economies of Central and Eastern Europe (Poland, Hungary, Czech Republic), Asia (South Korea, Singapore, Hong Kong) and Turkey. After having downgraded 78 country risk assessments last year, these 26 reclassifications are added to the 16 already revalued in the first half of 2021; accompanied by 30 positive reclassifications of sectoral valuations.
The vaccination campaign supports the recovery
Advances in vaccination in Western Europe and North America have helped avoid further restrictions on mobility and fuel optimism that new lockdowns can be avoided. However, the Covid threat has not gone away: Lower vaccination rates in emerging markets, especially in low-income countries, continue to pose the risk of variants resistant to currently available vaccines.
As the Barometer explains, “the global manufacturing sector has experienced a rapid recovery since mid-2020, driven by increased spending on consumer goods. Thanks to robust demand from households, strong trade flows remain a key support for economic growth, especially in the Asia-Pacific area. Demand for electronics and commodities is benefiting several markets in the region, such as South Korea and Taiwan. The economy of some of the main commodity exporters (Russia, Ukraine, South Africa, Chile and Algeria) is also supported by rising prices. In Central and Eastern Europe, export competitiveness and broad integration into European value chains support export growth. In terms of sectoral trends, the easing and lifting of restrictions in countries with the highest vaccination rates are contributing to a shift in household spending towards high-contact services such as retail, hospitality and leisure.
The weak points: tourism and supplies
For tourism, on the other hand, recovery is more difficult. Disruptions to supply chains and inflation are holding back the momentum of the recovery. There are headwinds, especially in terms of supply. Substantial savings in high-income countries have led to a rapid recovery in consumption. At the same time, lockdowns due to the pandemic have created disruptions in supply chains and hampered business activity. Competition in terms of raw materials and production factors is strong and limits industrial production on a global level, in some cases it also affects sales. In particular, the shortage of semiconductors is noted, which has implications for a wide range of sectors, from automobiles to information and communication technologies, in both advanced and emerging economies.