Deglobalisation 'could lead to higher supply chain costs'

4 November 2021

A trend away from globalisation could lead to higher supply chain costs “for years to come”, according to a report.

The report on the next decade of economic growth, by think tank The Conference Board, said the share of foreign content in manufacturing production fell from 26.5% in 2011 to 23.5% in 2020.

The report highlighted challenges including financial market volatility, inflation driven by rebounding growth, and supply chain bottlenecks.

“Brexit, trade wars, and tightened immigration policies all point to stalled momentum for the globalisation of markets and competition, which could exacerbate supply chain costs for years to come,” said the report.

“As a lagging sign, the share of foreign content in manufacturing production – which soared from 17.3% in 1995 to 26.5% in 2011 – had already retreated to 23.5% in 2020.”

The report said global GDP expanded by 5.1% this year but this would drop back to 3.9% next year and average 2.5% during 2022-26 and 2.4% in 2027-31.

Headwinds also included the end of rapid capital accumulation and working-age population growth in mature economies and China.

Klaas de Vries, Conference Board economist, said: “Challenges ahead include the potential of higher financing costs, heightened financial market volatility, inflation risks driven by rebounding growth and supply chain bottlenecks, and ongoing labour shortages.

“In this environment, harnessing the benefits from digital transformation strategies and upskilling workforces, should drive productivity growth through innovation and efficiency gains.”

Dana M Peterson, Conference Board chief economist, said: “Lessons learned in resilience and surviving disruption during the pandemic will become increasingly relevant in the decade ahead, amid a new mix of challenges, including some trends catalysed by the pandemic and others that predated it.

“Also, an evolution in the ways that we consume and work, including developments like tele-health and remote work, can potentially increase the productive capacity of the global economy and promote growth.”

The report said by the end of 2022, 66 out of 77 key economies, representing 96% of global GDP, should be at or above pre-pandemic output levels.

GDP growth projections by country and region 2022-31

US – 2%

Europe – 1.1%

Japan – 0.8%

China – 3.5%

India – 4.1%

Australia – 2%

Middle East and North Africa – 2.5%

Latin America – 1.5%

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