Deficits become an economic risk

Nearly a year ago, the main concerns of Swiss companies were weak demand and absenteeism. The COVID-19 pandemic and the measures taken to contain it weighed mainly on sales. Today, its consequences continue to worry many businesses. However, the sales problem has become primarily a manufacturing problem: Four out of five companies surveyed are currently reporting problems in the sourcing of semi-finished products, which is higher than the level before the first semi-lockdown in April 2020. Almost all industries are affected, even the construction industry. Wholesalers and retailers also face supply problems. This is a massive phenomenon with more than 80% of industry representatives surveyed reporting shortages in their industry.

Initially, the supply problems mainly related to products from Asia. Now almost all regions of the world are affected. Swiss companies, often closely integrated into the European market, believe that Europe is the most affected region, followed by Asia. The shortages are spread geographically, but also by product categories. Raw materials such as steel, aluminum and wood are missing. Added to this are the sharply rising energy prices, for example in Europe and China, resulting in a serious shortage of many semi-finished products such as semiconductors. In addition to chips, some plastics and chemicals are also missing. The shortage is even felt in the consumer goods market, including washing machines, cars and even skis and toys.

Increased demand, declining production and transport problems

The reasons for the current shortages are many: companies usually mention transport and logistics problems. Closed ports and missing containers – an unfortunate consequence of the COVID-19 pandemic – are impacting supply chains. In addition, production problems at suppliers hinder production processes. Many factories in Asia have had to reduce or shut down their operations due to measures taken to combat the pandemic. Some are even closed. For example, 41% of companies indicate that sanitary measures in the country of manufacture are one of the reasons for supply problems. Several environmental phenomena, such as Hurricane Grace, also played a role, with power outages further complicating production.

For a large part of the companies, the limited production capacities have to do with increasing demand. Accumulated purchasing power, government support and the prospect of lifting pandemic-related restrictions are boosting consumption. Under these conditions, production can no longer keep up with demand.

Companies should raise prices, but give up poaching

Shortages are not without consequences. Longer lead times and larger planning tasks are major challenges for companies. About a fifth of them are forced to cancel orders and refuse new ones, resulting in more than half a drop in sales.

However, companies are trying to reverse the trend. Many have increased their inventories and about half are looking for new suppliers in another country, slightly less than half are looking for other supply solutions in the country of manufacture. On the other hand, reintegrating the manufacturing of the missing components is almost never considered, often due to a lack of know-how. Most companies no longer want to be fired, which is not surprising given the acute shortage of qualified personnel. Just under 6% of companies surveyed, including mainly automotive suppliers, are seriously considering raising partial unemployment.

Faced with the increase in costs and purchase prices, many are forced to adjust their prices. About half of the companies have already acquired them and three in five plan to do so within the next six months. While retail prices of some components have increased by a factor of 100 or more, industry representatives surveyed expect prices to increase by about 5% over the next six months for all affected components. While some of the price pressure may be absorbed through margins, consumers will be more aware of the problems caused by logistical disruptions and parts shortages.

Problems hamper recovery and increase inflationary pressures

The impact of these disruptions on the global economy will largely depend on the duration of the deficits. The verdict resulting from the responses, however, is food for thought: the sectors concerned do not expect the supply problems to be solved for next year. Normalization is therefore likely to be delayed. At the same time, rising prices for raw materials, energy and semi-finished products increase the risk of an inflation surge. Such a development is dangerous and could significantly cloud the economic outlook for this year and next.

The economysuisse survey was conducted from October 13 to 19, 2021. A total of 237 organizations participated in this survey, which covers all regions of Switzerland. Twenty industry associations responded in a consolidated form on behalf of their own sector. The analysis reflects the current mood of the Swiss economy. The answers have not been weighted and the results are not intended to be representative.

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