Laurence Boone, the OECD's chief economist said firms will be looking for ways to mitigate supply chain risk © AFP/Getty Images
Laurence Boone, the OECD's chief economist said firms will be looking for ways to mitigate supply chain risk © AFP/Getty Images

Coronavirus threatens integrated supply chains, says OECD

2 March 2020

The outbreak of coronavirus could push firms to step away from integrated supply chains, according to an economist. 

Think tank the Organisation for Economic Co-operation and Development (OECD) said containment measures such as quarantines and restrictions on travel have already disrupted global supply chains.

Laurence Boone, chief economist at the OECD, said the outbreak of coronavirus, formally known as Covid-19, could lead firms to move away from extremely integrated supply chains in order to mitigate risk in future. 

“What we have seen over the past decade is effectively real-time management of stock and very integrated supply chains," she said. 

“Several things have happened in the last few years. The first one is trade tensions. Second is the search for a fairer international taxation system and then there is climate [concerns] putting challenging adaptation issues to firms. This [Covid-19] is a fourth element that determines the way the solution is organised.

“After this outbreak, firms will likely look at how they are managing stock, how they are organising production around the world, how taxation is impacting them, where they should locate their firms to minimise the risk of climate events and possibly we will see another organisation of supply chains.” 

In its Interim Economic Outlook, the OECD found global GDP is predicted to drop to 2.4% in 2020, down from 2.9% in 2019, but it warned a “longer lasting and more intensive coronavirus outbreak”, spreading widely across Asia, Europe, and North America, could cause global growth to fall to 1.5%, half the figure projected in November 2019. 

The OECD called on governments to act “swiftly and forcefully” to “limit the spread of the coronavirus, protect people and businesses from its effects and shore up demand in the economy”. 

“Supportive macroeconomic policies can help to restore confidence and aid the recovery of demand as virus outbreaks ease, but cannot offset the immediate disruptions that result from enforced shutdowns and travel restrictions,” the OECD said.

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