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No End to Pressures ‘Reshaping Global Supply Chains,’ UBS Analyst Says

Last year’s supply chain reshuffling resulted in market share changes in Asian economies’ trade activity, with exports from Mainland China, Taiwan, Indonesia and Vietnam rebounding to 150 percent of their 2019 pre-Covid levels.

Hong Kong-based UBS economist William Deng expects supply chains will see additional developments this year. More Asian economies are bouncing back from market-share losses in the fourth quarter of 2020 to gains in 2021’s fourth quarter, citing India, Indonesia and Malaysia as examples. Hong Kong and Singapore are showing export recoveries as well. In addition, the number of consumer products facing additional U.S. tariffs will continue to move production away from Mainland China to other parts of Asia, with Vietnam one of the early beneficiaries, especially in apparel and footwear.

China’s Covid lockdowns, however, hold uncertain implications for regional and global supply chains. Suspended production, a slowdown in goods flows and further supply chain disruptions due to input shortages are ahead for shippers and manufacturers.

Moreover, input shortages for component and raw materials to factories could also impact production among Asian producers because of China’s role in the regional supply chain, Deng said. Restrictions limit the Shanghai and Yangtze River Delta, two of most important hubs for China’s cross-border trade and logistics. With the lockdowns in place in Shanghai and in other cities, Mainland China’s traffic congestion index dropped below the 2020 level, reflecting the significant restraint on the logistics network.

If Covid challenges and restrictions persist, those factors could motivate producers to accelerate their hunt for alternative production bases outside of China—and that would benefit the rest of Asia, Deng said.

UBS has revised down its global economic growth forecasts, particularly in the European economies where the Russia-Ukraine war is taking a toll. At the same time Deng cautioned that as consumers spend more for services over goods, as well as energy price hikes depressing goods consumption, the slowdown in spending would represent a challenge for Asian economies that have benefited from the demand for consumer goods exports.

“On top of the near-term demand-side shock, the Russia-Ukraine war may also play a role in reshaping global supply chains, which would entail implications for Asia’s production and trade,” Deng said.