Economic Demand Is Back. Supply Is the Problem.



Mohamed A. El-Erian | Bloomberg

What a difference a year makes for many corporate bosses in advanced economies. Some 12 months ago, they were dealing with the sudden and brutal disappearance of demand for their products. Today, demand is not a problem for most of them; it is surging. Rather, they are struggling to secure supplies, including the raw material inputs and workers needed to meet this demand — the consequences of which will determine much more than corporate success.

Strong consumption and investment, enabled by economic reopenings and solid corporate and household balance sheets, are bolstering aggregate demand to a degree that has surprised many, be they executives, economists, policy makers or Wall Street analysts. It is a phenomenon that is likely to persist in the months and quarters ahead, especially in those countries that are able to contain Covid-19 infections, vaccinate many citizens and guard against new variants of the virus.

The supply side is much more of challenge. Indeed, it is quite a mess.

Bottlenecks and other rigidities are disrupting many supply chains. Shipping, including the availability of containers, has become much harder to secure. Covid outbreaks in certain countries that are embedded in global supply chains — such as Bangladesh, India and Vietnam — and geopolitical uncertainties, including periodic tensions between China and the U.S. and Europe, add to the headaches facing those not just trying to get raw materials to their factories in a timely and cost-effective manner but also to meet seasonal demand for their final products.

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