Global shortage is a perception caused by demand spike

With the G20 Rome summit (30 - 31 October, 2021) draws near, world leaders are looking forward to discussing about the global bottlenecks as well as the remedies for them. However, Robert Koopman has a different view on this matter. 

In his talk with Reuter on 27th October, he suggested that the bottlenecks are a result caused by huge increase in demands and the problem does not lie in the supply chain. As a result, policies aimed toward supply chain were off-target. 

"I think the real issue here is demand, and demand is driving what is this perception of shortages even though it's not clear to me that supplies are below where they were in 2019, except in things like automobiles," said Koopman in his Reuters interview.

With the epidemic being somewhat under controlled, governments worldwide have launched numerous fiscal and monetary supports to boost economic recovery. Backed by these supports and by the fact that most people are moving back to their office life from home working; all goods and services, ranging from food, transportation, restaurants to tourism have flourished. Furthermore, the fear of possible shut downs and new waves of infection has pushed retailers and wholesalers to build inventories.

"Demand has continued to grow beyond the level that the supply chain was established to be able to provide," Koopman said.  "It's part of the cost of the quick recovery."

The automotive sector has struggled. Koopman said that, with hindsight, by mistakenly cutting down on orders during the pandemic, with subsequent demand far exceeding expectations. Meanwhile, chipmakers had shifted focus to supply laptop and mobile phone producers, for which demand was strong throughout the pandemic.

These disruptions are partly the reason for IMF (International Monetary Fund) to down its global growth forecast of this year. Still, the figure is quite solid at 5.9%, and 5.2% for advanced economies.

Koopman explained that global production as a whole was strong and air and sea freight volumes were at or near all-time highs. Bottlenecks, such as at U.S. ports, resulted more from the logistics failures as trucking and rail operators were struggling to absorb the demand surge. However, with the physical capital and labour still largely intact, soon the struggle of supply chains will vanish and they will thrive once more.

"My guess is that we should after the New Year start to see things slow down. That might depend though on stimulus measures in different countries," Koopman said. His opinion supported the view of central banks that this is a transitory phenomenon.