Omicron, supply chain, inflation 3 main risks facing businesses now

Transportation bottlenecks and rising shipping prices being the main issues in global supply chain, apart from lack of shipping capacity, rising energy costs and truck driver shortage in the largest economies.

Global inflation is predicted to rise from 4.3 per cent in 2021 to 4.6 per cent in 2022. Inflationary pressures will remain high in most key economies.

The strategic market research firm’s 2022 real gross domestic product (GDP) growth forecasts for the world and most key economies in the first quarter (Q1) of 2022 represent a downgrade from forecasts made in Q4 2021.

One of the main concerns with omicron is that it has caused staff shortages in many countries, as employees become infected and need to self-isolate. In the United States, for example, omicron is exacerbating the problem of worker shortages, while businesses in the country have already struggled to fill a record number of vacancies, Eurominitor International said in a press release.

As omicron leads to a delay in normalisation of the labour market and supply chains, it also adds risks to inflation. If consumers do not shift part of their spending to services, the rise in prices of global goods could be more persistent than previously expected, the company said in a latest report.

The global manufacturing sector is predicted to recover in 2022 and exceed pre-pandemic production output levels. Industrial production data forecasts indicate that output should increase in the second half of the year. This suggests that suppliers will have greater capacity to increase production volumes. Moreover, recovering investments and trade value also indicate that global supply chains are set to recover in 2022.

However, transportation problems are predicted to ease in 2023 when a higher number of shipping vessels will be constructed, and shipping capacity will improve.

China’s zero-COVID-19 policy is another risk factor that could impact global supply chains in 2022. The lockdown measures in China largely affect companies purchasing hi-tech goods, textiles and household goods from Chinese suppliers, as the country accounts for 30 per cent of global exports in these industries.

Restrictions on economic activities and border closures could also impact manufacturers in neighbouring Asian countries, such as Vietnam or Thailand. However, the risks are anticipated to be short-lived as COVID-19 infection cases are forecast to begin declining in the second half of 2022.

Companies are also expected to feel an increased shortage of workers and competition for input materials. The faster spread of the Omicron variant and consequently higher numbers of employees on healthcare leave will further add to the labour market problems in the first half of 2022.

These shortages would primarily hit agriculture and food processing industries, as these sectors remain relatively labour-intensive, and not all processes can be automated.

Rising geopolitical uncertainties in Europe (particularly surrounding the Russia-Ukraine conflict) and elsewhere are a main downside risk, placing further pressure on energy prices. Heightened inflationary pressures could trigger central banks in some economies to tighten their monetary policies in 2022, while consumer behaviour could change due to rising costs, the research firm said.

Business will continue to be confronted by the two-fold impact of inflation. On one hand, rising energy, material and freight prices are weighing on companies’ production costs and profit margins. On the other, consumer income and thus spending, can be eroded by higher inflation, impacting sales.

Fibre2Fashion News Desk (DS)