Global supply chain disruptions could remain high until the second half of 2022 amid renewed Covid-19 outbreaks around the world, China’s sustained ‘zero’ policy with regard to the pandemic, and demand and logistics volatility during Chinese New Year, according to Euler Hermes’ Global Trade Report.
Nevertheless, the trade credit insurer expects trade growth to remain strong through 2022 and 2023, with some clear winners across regions and sectors.
New transportation capacity
After an exceptionally strong performance since the second half (H2) of 2020, the global trade of goods contracted in the third quarter (Q3), especially in advanced and emerging economies. However, advanced economies are suffering more from supply chain bottlenecks rather than trouble with demand, Euler Hermes found, with production shortfalls being behind 75% of the current contraction in global volume of trade, with the rest explained by transport delays.
“Looking ahead, rapidly growing orders for new transportation capacity (6.4% of the existing fleet) should turn operational towards the end of 2022 while increased spending on port infrastructure in the US should significantly ease global shipping bottlenecks,” the report noted.
‘China a key downside risk’
Europe is more at risk compared to the US when it comes to the heavy reliance on intermediate inputs from abroad. Without production capacity increases and investments in port infrastructure, the normalization of supply bottlenecks in Europe could be delayed beyond 2022 if demand remains above potential. The report highlighted household equipment, consumer electronics, automotive and machinery and equipment sectors as the most vulnerable to input shortages.
“China is a key downside risk for Europe: we estimate that a 10% drop in EU imports from China could be a drag of more than -6% on the metal sector, more than -3% on the automotive sector (including transport equipment) and more than -1% on computer and electronics,” said Ano Kuhanathan, Senior Sector Advisor at Euler Hermes.
Reshoring ‘more talk than walk’
Despite the ongoing global supply chain disruptions, the report identified no clear trend of reshoring or nearshoring of industrial activities so far. The only exception is the UK, which is likely to have faced disruptions due to Brexit. However, protectionism reached a record high in 2021 and should remain elevated, mainly in the form of non-tariff trade barriers – for example, subsidies and industrial policies.
While there is a risk of a double-dip in Q1 2022, Euler Hermes expects a normalisation of international trade flows in volume from H2 2022, driven by three factors: a cooling down of consumer spending on durable goods, given their longer replacement cycle and the shift towards more sustainable consumption behaviours; less acute input shortages as inventories have returned to or even exceeded pre-crisis levels in most sectors, and capex has increased (mainly in the US); and reduced shipping congestions (global orders for new container ships have reached record highs over the past few months, amounting to 6.4% of the existing fleet) and the planned US$17 billion spending on port infrastructure in the US.
Overall, Euler Hermes forecasts global trade in volume to grow by +5.4% in 2022 and +4.0% in 2023, and then gradually return to its pre-crisis average levels. However, this comes at the expense of increased global imbalances.
“The US will register record-high trade deficits (around US$1.3 trillion in 2022-2023), mirrored by a record-high trade surplus in China (US$760 billion on average). Meanwhile, the Eurozone will also see higher-than-average surplus of around US$330 billion”, explained Françoise Huang, the company’s Senior Economist for Asia-Pacific.
Main export winner
Euler Hermes estimates that the energy, electronics and machinery & equipment sectors should continue to outperform in 2022. But the main export winner globally in 2023 should be automotive, thanks to the backlog of work and lower capex in 2021.
At the regional level, Asia-Pacific should continue to be the main export winner in the coming few years (over US$3 trillion in export gains in 2021-2023).