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Business News/ Economy / Supply bottlenecks in Asia worsening again: Nomura
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Supply bottlenecks in Asia worsening again: Nomura

Raw materials shortages, port congestion and unavailability of containers have lengthened lead times, at a time when chip inventories are already running low

Input shortages and low inventories will likely lead to production cuts and delayed shipments in Q3. (File Photo: AFP)Premium
Input shortages and low inventories will likely lead to production cuts and delayed shipments in Q3. (File Photo: AFP)

MUMBAI: Supply bottlenecks worsened in August, according to Nomura. The suppliers’ delivery times index component of manufacturing PMI declined in eight of nine Asian economies in August to an average of 41.3 from 42.0 in July.

Delivery times were most stretched in countries that are a part of manufacturing supply chains, such as Vietnam. Supplier delivery times also deteriorated in South Korea and China. The spread of the delta variant of the coronavirus amid still-low vaccination rates in many ASEAN economies and China’s zero-tolerance covid strategy has prompted governments to impose fresh restrictions and order factory/port closures.

As a result, raw materials shortages, port congestion and unavailability of containers have lengthened lead times, at a time when chip inventories are already running low, said Sonal Varma, chief economist India and Asia, ex-Japan, in a note. Input shortages and low inventories will likely lead to production cuts and delayed shipments in Q3, she said. Indeed, both output and export orders components of manufacturing PMIs also eased in August.

“Asia is home to the world’s global manufacturing powerhouses, so if these supply constraints don’t start easing within the next month or two, higher downstream product prices could be in store for the western consumer markets," Varma added.

Overall, August trade data in India was robust in headline growth terms, but sequential momentum softened.

“We believe this softness could be due to both demand- and supply-side factors. On the demand front, global growth is moderating after a stellar H1, especially in the US and China. Additionally, supply chain bottlenecks have worsened because of the spread of the delta variant in Asia, resulting in raw materials shortages, port congestion and the unavailability of containers, further worsening chip shortages," said Nomura in a separate note.

Nomura India Business Resumption Index (NIBRI) which tracks high frequency data has improved to pre-pandemic levels and record highs, even as auto sales have struggled and manufacturing PMI moderated, although it remains in the expansion zone.

“Nevertheless, we believe that the combination of an accelerating pace of vaccinations, continued economic normalization, steady global growth, easy financial conditions and fiscal activism should contribute to a cyclical growth recovery; we project GDP growth will average 9.2% y-o-y in FY22," Nomura added.

Supply bottlenecks should also partially resolve in the coming months, as economies like China and Malaysia have eased their local covid-19 restrictions, Nomura said.

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Published: 04 Sep 2021, 05:37 PM IST
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