IMF: Supply Chain Disruption Reduced Global GDP in 2021
The magnitude of the damage caused by supply chain disruptions last year has been revealed in a new report from the International Monetary Fund (IMF). The IMF showed that shipping problems shaved off 0.5–1.0 percentage points of global economic growth and added about 1.0 percentage point to core inflation.
In its latest World Economic Outlook report, the IMF shows that supply disruptions largely caused by the COVID-19 pandemic - characterized by high demand for consumer goods, congestion at ports, limited shipping capacity and trucking chaos - had adverse impacts on global gross domestic product (GDP).
“The shift toward goods consumption, particularly in advanced economies, overloaded global supply chain networks during the pandemic. This problem was compounded by pandemic-related impediments to transportation and staffing, as well as by the inherently fragile nature of just-in-time logistics and lean inventories,” said the IMF.
The institution added that the resulting disruption to global trade led to shortages and higher prices for imported consumer goods, with ripple effects being felt in the form of inflation. Disruption in the U.S. was particularly severe and was consistent with the larger switch into goods consumption.
The IMF predicts that in 2022, supply chain disruptions are bound to ease because the composition of demand is likely to shift back to services. However, they will continue to hover uncomfortably over the global economy. Growth is expected to moderate from 5.9 percent in 2021 to 4.4 percent in 2022 and slow further to 3.8 percent in 2023.
Although supply-demand imbalances are expected to wane over the course of this year, they pose risks to the world economy by instigating higher future prices, particularly after the Omicron variant forces countries to reimpose mobility restrictions. While dysfunctional global supply chains leave economies less able to adapt to a possible resurgence of the pandemic as clogged ports impede the flow of goods, the Omicron variant may further limit the efficiency of ports, adding to shipping problems.
However, the primary source of decline in global GDP growth is mainly due to downward revision of projected growth in big economies like the U.S., where growth has been downgraded by 1.2 percentage points from the October forecast. For Canada, growth has been downgraded by 0.8 percentage, along with reductions of 0.8 percentage point for China, 0.4 percentage point in the Euro area and 0.3 percentage point for the United Kingdom.
The IMF forecasts that inflation will remain higher in the near term, averaging 3.9 percent in advanced economies and 5.9 percent in emerging market and developing economies this year. It is expected to subside in 2023.