How Omicron is disrupting supply chains

Yangshan Container Port in Shanghai, July 10, 2021. AP

Text by: Agnieszka Kumor

4 min

The arrival of Omicron, a new variant of the coronavirus, is disrupting production chains around the world.

The various countries are trying to find solutions to remedy these shortages.

However, a new supply shock is to be feared, estimates Jean-Paul Pollin, professor at the University of Orleans and member of the Cercle des Economistes.

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RFI: Examples among others: affected by shortages, the video game giant Nintendo foresees supply delays for its Switch console beyond the beginning of 2022. In question, the global shortage of semiconductors and the disruptions of logistics chains. It is to guard against these shortages in the future that Taiwan and Japan are considering comprehensive cooperation in semiconductors. We can see that the various countries are trying to remedy the supply problem. With what result?

Jean-Paul Pollin:

It is true that the different countries have had quite different strategies in the face of the upsurge in the pandemic. And that has had a direct impact on supply chains. China is playing a “

”

We are closing factories, confining as much as possible. Of course, that puts a number of businesses in difficulty. The manufacture of products as well as their delivery around the world are delayed.

That said, we played the game of international trade, we played the game of internationalization of production.

But this globalization, because that's what it is about, it took place in a totally uncoordinated way.

However, the growing interdependencies between countries called for more coordination.

In a way, we have been trapped by globalization by forgetting the security issues.

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RFI: The supply chain difficulties also concern France. With the arrival of Omicron, we risk an amplification of the constraints on French industry which depends 60% on the euro zone, the most affected by the pandemic, for its supplies. Several sectors are affected by these disturbances, in particular the automobile industry, electronics, metallurgy and construction. To help them, a Bercy support plan has been opened to all sectors. Could this supply shock weigh on French growth?

This interdependence between the different countries is particularly striking in the euro zone.

There is, of course, the global shortage of semiconductors, but the same problem also affects wood used in construction.

There is a lack of steel which is used both in construction, but also in the manufacture of a large number of manufactured products.

Germany, in particular, is France's major supplier of capital goods.

It is therefore clear that this supply shock risks weighing on French GDP growth and that of other member countries.

And this, at least in the first quarter of 2022. This was already the case in previous waves.

Producer prices will rise again.

Production chains are in danger of being stopped.

Obviously, this is not good for growth.

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RFI: The government is still counting on a 4% increase in GDP in France in 2022. After a difficult start to the year, will French growth be able to resume?

Little is known for the moment about this new variant of the coronavirus. We know that it spreads quickly, but that eventually, it could be less dangerous than the previous variant, Delta. It is therefore difficult at this stage to comment. However, if things were to happen as in previous waves, we can see that each time there was a deep depression, but then it was caught up quite quickly thanks to the measures deployed by the government. Support measures which consisted of maintaining demand on the one hand and maintaining supply as much as possible on the other. That is to say, to allow companies to survive during the difficult period so that when the recovery begins, the tools of production are not too degraded.

This was possible in 2020 and 2021. This year, the recovery was much stronger than expected.

Simply, we cannot eternally continue to support production, to subsidize companies when

there is no production and the work is not done.

We are in France with high levels of debt.

You can't keep pulling the rope indefinitely.

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