“Rolling Natural Disaster” – COVID-19 Supply Chain Shock Could Trigger Global Depression
Evidence of creaking global supply chains is fast emerging, at risk of triggering the next global depression amid the COVID-19 pandemic.
A supply chain crisis that began earlier this year, one that we warned from the very start, has now spread across Asia to the Middle East to Europe, and now to the Americas.
“This is kind of a rolling natural disaster,” said Ethan Harris, head of global economic research at Bank of America. “In terms of the impact on global production, the shutdown outside of China will likely become bigger than the impact from China.”
Harris warned that the shock to global supply chains is deep and broad and could easily last through the next quarter. He estimates that factory shutdowns in many regions could last until May.
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He describes a twin shock, one where a supply chain shock has been combined with a demand shock, culminating into a perfect storm, will likely tip many countries into recession, if not depression during the second quarter.
Bloomberg piecemeals current supply chain disruptions seen across the world:
Apple has had the most exposure to a China shutdown, with manufacturing plants in the country still operating well below full capacity in late March. Virus-related closings have hammered several of the company’s key suppliers operating in South Korea, Italy, Germany, and Malaysia.
In late January, Freeport-McMoRan’s CEO Richard Adkerson warned that the virus outbreak in China is a “real black swan event” for the global economy. The company’s mining operations in Peru have recently been halted. Other mining facilities in Chile, Canada, and Mongolia have also been shuttered.
Across Europe, Airbus and Volkswagen AG have closed production plants amid severe virus outbreaks in Italy, Spain, Germany, France, Switzerland, and the UK. Major transportation networks on the continent have come to a standstill as nonessential travel has been banned in many regions.
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