The CEBR indicated that there are “promising” signs of supply chain pressures easing, citing rate reductions in both the Baltic Dry Index and the HARPEX container shipping index. On the other hand, the CEBR also warned that disruption from the Omicron Covid-19 variant expected in the next couple of months “will be challenging”.
What is arguably more interesting, however, is the point the CEBR raised about the easing of supply chain issues also having its own risks.
To back up the argument, the CEBR referred to the situation in the mid-1970’s:
“As the world economy emerged from a similarly severe supply chain crisis in the mid 1970s, firms who had put a lot of effort into filling their inventories during the shortage suddenly moved from restocking to destocking, causing a painful drop in production output.”
In light of this, the CEBR says that “policymakers would be well advised to heed the lessons of the past to avoid a similar contraction once supply chains unsnarl.”
Therefore, it appears that even the end of the current supply chain pressures, which so many businesses are craving, can itself generate its own issues that companies should prepare for.