Global demand for consumer goods has rebounded since the second half of 2020, driven initially by large government stimulus packages and, more recently, by resilient capital expenditures and swift vaccination rollouts in most developed markets. But supply constraints remain.
Some large emerging market manufacturing countries continue to struggle to contain the virus, while sectors such as semiconductors continue to face capacity shortages due to surging demand for automobiles and electronics. Logistical bottlenecks, caused by disruptions to ports, shipping lines and domestic transportation, have lengthened delivery times and further weighed on the supply shortage in some regions. As a result, inventories quickly run out and inflation has spiked in the U.S. and other markets.
However, we expect the supply bottlenecks to ease towards year-end, as production increases, shipping congestion clears, developed market demand for goods declines, and consumers in advanced economies shift spending to services (assuming no further disruptions from the pandemic).
A differentiated supply picture
Overall, Asian production has recovered better than other regions (see Figure 1). In East Asia, where the pandemic has been relatively well-contained and most factories have remained open, industrial production has picked up quickly since the second half of 2020. China’s industrial production had already rebounded and exceeded pre-pandemic levels by last June, and has remained solid since then, supported by strong exports and domestic investment. While global Purchasing Managers’ Index data in May generally showed lengthier delivery times compared with 1Q, Asian economies have fared better.
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Semiconductor chip shortages remain a major supply bottleneck for global manufacturing. The recent coronavirus outbreak in Taiwan could prolong the shortage, although the impact so far has been largely on domestic consumption and consumer sentiment rather than industrial activity. While foundry production is mostly automated and not particularly labor-intensive, the pandemic is affecting other parts of the tech supply chain, such as logistics. We continue to expect the chip bottleneck to ease gradually in the second half of 2021, particularly for car companies, yet semiconductor supply will likely remain tight.