The economic rebound of the Covid-19 has been easy. Now comes the hard part

Central banks in the United States and elsewhere are trying to chart a course that will curb inflation but not stifle growth as they navigate the process of weaning economies from extraordinary measures – including lower interest rates. lower and huge bond buying programs – deployed to support their economies.

The surge in demand from U.S. consumers over the past year – supercharged by billions of dollars in stimulus packages – has ricocheted outward and caused disruptions in worsening global supply chains. now and could extend to 2022, executives say. The resulting rise in prices and the struggle to secure raw materials and labor are increasing the pressure on some companies and weighing on large economies like Germany.

Meanwhile, China is in the midst of an ambitious effort to reform its economy, including containing household and corporate debt, especially in the country’s housing market, cracking down on the tech sector, and suing ambitious climate goals – factors that could slow growth there and globally.

As a result, the global recovery, while still robust, is at a precarious stage, with the risk of missteps.

“This is the hardest part of the recovery,” said Neil Shearing, chief economist at Capital Economics in London. “Policymakers need to determine what is permanent and what is likely to be short-lived.”

If central banks move too slowly, inflation could continue to rise, with price hikes and wage hikes feeding on each other. But if they raise rates too quickly, it could stifle economic recovery in a heavily indebted world.

“It’s very, very hard to predict and not easy to define,” Federal Reserve Chairman Jerome Powell said on Wednesday after announcing plans to start cutting his $ 120 billion bond buying program. dollars per month this month.

“Inflation has become higher than expected and the bottlenecks have been more persistent and more widespread,” he added. “We see that they are now on track to persist next year. Forecasters.”

Some movements surprise investors.

The Bank of England’s decision on Thursday not to raise interest rates sparked the biggest moves in UK bond yields in years. On the same day, the Czech central bank raised its key rate much more than expected, to 2.75% from 1.5%.

Only about a fifth of companies believe the worst supply chain disruption is over, according to an Oxford Economics survey of large companies in October. A third of those polled said the disruption is likely to last until the end of next year or beyond.

The challenges are particularly difficult in the United States, where nearly $ 6 trillion in fiscal stimulus has pushed consumer spending up to about 9% above its pre-government level. pandemic and where supply bottlenecks helped push inflation to 5.4% in September, a 13-year high.

“These are difficult times,” said Jeffrey Edwards, managing director of Cooper-Standard Holdings Inc., an auto parts maker, last week. “We have not been able to offset the widespread inflationary impacts that we are experiencing – see in materials, energy, transportation and labor.”

The company reported lower sales and a loss in the third quarter. Mr Edwards said the company was considering selling some assets.

In ports along the east and west coasts, container volume was nearly a fifth above its 2019 level in the three months to June, according to Fitch Ratings.

“In the spring, I was pretty sure things would start to relax in the fall. What happened was things got worse, “said Lars Mikael Jensen, network manager at container giant AP Moller-Maersk A / S.” So I stopped making forecasts.”

The U.S. economy created more than half a million new jobs in October as businesses returned from a summer slowdown caused by the Delta variant of Covid-19, the Labor Department said on Friday. He also said about a quarter of a million more jobs were created in August and September compared to what he had previously estimated. The average hourly wage of workers in the private sector rose 4.9%, about double the average annual wage gain in the 15 years leading up to the pandemic.

In China, growth is expected to slow to an annualized rate of 3% or 4% over the next few quarters, according to Nomura, as the world’s No.2 economy is strangled by energy and materials shortages and government crackdowns on key industries like real estate.

“This slowdown is going to be bigger and longer than anything we’ve seen in the past 10 years” in China, according to Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets.

Weak domestic demand and shipping bottlenecks have led to many order cancellations at a small motorcycle parts factory in southern China’s Dongguan city, according to the woman who runs the plant. , Ms. Luo, who asked to be identified only by her last name.

The factory is facing soaring prices for raw materials such as steel, Ms. Luo said. In addition, last month, Ms. Luo’s factory was forced to operate only at late hours for three weeks when local authorities in Guangdong Province restricted electricity consumption due to power cuts. electricity widespread in the country.

She said she expected demand to cool down next year “as the overall economic situation worsens, not just manufacturing.”

Despite strong demand, Red 100 Lighting Co. Ltd, based in the eastern province of Shandong, is struggling to deliver goods to overseas customers due to traffic jams and sporadic Covid-19 outbreaks at several major ports in China, said Ms. Zhao, marketing manager. to the company, which also asked to be identified only by her last name.

In Southeast Asia, the Covid-19 epidemics have receded and factories have reopened, restoring some key links in global supply chains. But the region continues to face labor shortages, high shipping prices and Covid-19 outbreaks.

Jonathan Moreno, who oversees operations in Vietnam for Diversatek Inc., a Milwaukee medical supplies company, said his local workforce is now fully vaccinated. But when one of his workers tested positive recently, other staff who had contact with the worker – around 15% of his workforce – also had to be sent home for a week.

Germany’s economy, Europe’s largest, is expected to stall in the coming months as supply bottlenecks weigh on the country’s powerful manufacturing sector, especially the auto industry. Manufacturing output was 10% below pre-pandemic levels in September.

European sales of new cars fell by almost a quarter in September from the previous year, the lowest for that month since 1995. Czech automaker Skoda Auto, a unit of Volkswagen AG, is slowing production in August. over the next few weeks due to the semiconductor shortage and expects to produce around 250,000 fewer vehicles this year due to missing parts.

Heinze Gruppe GmbH, a German auto parts maker with around 1,100 employees that supplies Porsche, BMW and Mercedes, went into provisional bankruptcy in September after struggling year-round with price increases, delays of several months for materials such as plastic and the closure of some auto factories. due to the chip shortage, CEO Joerg Tilmes said.

“I have been in the automotive industry since the age of 25 [and] the situation has never been as dire as it is now, ”said Mr. Tilmes.

Companies are wondering how to plan given such poor visibility on when supply chain disruptions will end.

Customers “were very sure there would be a pickup starting in September, so we were asked to have high inventories and people ready to work at the end of the year. That didn’t happen, ”said Pierre Boulet, CEO of Novares, a French company that manufactures plastic components used in one in three vehicles around the world.

In recent months, Novares customers have canceled orders over 150 times with less than 48 hours’ notice. “Our inventory keeps growing,” he said. “It has a brutal impact on cash flow because we are buying and not selling.”

In Madison, Wisconsin, Josh Glenn is caught between booming demand and limited supply. Mr Glenn, who owns an appliance repair business, said his technicians were booked for more than two weeks, down from three or four days before the pandemic. But a shortage of parts kept it from meeting demand.

“I have a guy who’s been waiting for a part for his refrigerator for two months,” he said.

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