The impact of the new crown epidemic on the weak growth of the supply chain in the euro area has suffered another setback

 The impact of the new crown epidemic on the weak growth of the supply chain in the euro area has suffered another setback

In 2011, the earthquake and tsunami in Northeast Japan caused a double impact on demand and supply at home and abroad, just like the current new crown epidemic. According to the report of Oxford Economic Research Institute, however, it can be seen from the research that at that time, the impact of various industries was very uneven, among which the automobile industry was the most affected. This shows that the impact of the new crown epidemic on different industries may also be very different, while in industries with complex supply chain, the possibility of V-shaped recovery is less.

The impact of the new crown epidemic on different industries may also be very different

New crown disrupts European supply chain

Among them, Italy has the most serious epidemic, with 1128 confirmed cases and 29 dead cases. There are 13 regions and 1 autonomous province with new epidemic. The latest news shows that the new crown epidemic in Spain (58 cases) also began to spread.

It is worth noting that Italy and Spain are close links in the German automobile supply chain.

Take Italy as an example. According to the data of OEC under MIT, the total amount of automobile products exported by Italy to Germany is about 7.43 billion US dollars, accounting for about 12% of its total exports to Germany.

Four or all of the worlds largest carmakers will be forced to stop production in Europe, MTA, a leading Italian supplier, warned in a statement.

MTA said in a statement that if its 600 employees in the northern Italian town of codogno fail to return to work within a few days, the production line of Fiats Chrysler subsidiary will come to a standstill. All Fiat Chrysler plants in Europe, as well as Renault, BMW and Peugeot, will also be closed. MTA said in a statement.

Maria Vittoria falchetti, a member of the MTA board, said the plants closure would have a devastating impact on the global supply chain.. After the first case of infection was found, the factory was closed at 22:00 local time on February 21.

MTA had asked Lombardy local authorities to allow it to reopen its factories to deliver manufactured goods, but was refused. Weve been asking the authorities, but they dont listen. If we were allowed to operate 10% of our capacity, we would be able to deliver at least what we have in the warehouse, minimizing the loss of production disruption, but they said no. Falkati said.

It is worth noting that since last month, the new crown epidemic has affected European car manufacturers production lines in China, but the chain reaction to local suppliers in Europe has only begun to appear until now, because a large number of inventories have helped manufacturers overcome delivery problems.

Friedolin Strack, head of international markets at the German Federation of industry, said container traffic between Chinese and German ports had fallen sharply and that if this situation could not be improved, the supply chain would be in danger of breaking. So far, the supply chain has not been interrupted immediately, but the goods we received at the port today were delivered 4-5 weeks ago, so there will be a supply shortage in the next few weeks. The automotive, electrical and pharmaceutical industries are also expected to be hit by supply shortages, he added.

In 2011, the earthquake in Japan caused a double shock of demand and supply at home and abroad

Impacted Industries

Possibility of V-shaped recovery

Economists in Europe worry that the impact of the new coronavirus will exacerbate the plight of European manufacturers and drag down weak economic growth in the eurozone.

Before that, European manufacturers have suffered two consecutive years of decline in orders and production. Last year, the economic growth of the eurozone dropped to the lowest level in seven years: in 2019, the GDP of the eurozone increased by 1.2% year-on-year, down 0.7 percentage points from 2018.

At present, the European Commission considers the impact of the new crown epidemic to be controllable and expects the growth of the euro area to remain at 1.2% in 2020. Previously, the International Monetary Fund had predicted in January that the eurozones economic growth in 2020 would be 1.3%.

The European Central Bank is due to hold its next monetary policy meeting on March 12, and is under increasing pressure to cut interest rates and increase bond purchases.

Gabriel makhlouf, governor of the Irish central bank and member of the European Central Banks Governing Council, said recently that although the new crown epidemic will obviously have a negative impact on the eurozone economy, it is too early to say how serious it is.

Its hard to make a decision on any change in monetary policy without medical experts making an estimate of the speed of control. Markruf pointed out.

The Oxford Institute of economics gives some quantitative methods. According to the report, it took several months for Japans industrial production to recover after a 15% drop in the month following the 2011 earthquake. It is worth noting that although the earthquake and tsunami hit an area accounting for only 3% - 4% of Japans production, the above situation still happened, which shows that supply chain disruption will bring huge chain effect.

At that time, the impact of various industries is very uneven, supply chain disruption is particularly serious in the industry with complex supply chain, such as automobile industry. According to the report, Japans auto production fell nearly 60% in two months, and it took 7-8 months to recover, but other industries suffered much less damage and recovered faster. For example, the food / tobacco industry fell only 10%, and then quickly reversed.

In addition to the automotive industry, the impact of the 2011 Japanese earthquake on global production was also relatively moderate and short-lived, the report said.

Adam Slater, an economist at the Oxford Institute of economics who wrote the report, told CFI that the impact of the new crown epidemic on different industries may also be very different, while in industries with complex supply chains, V-shaped recovery is less likely. And the new crown epidemic may cause more extensive and serious disruption, especially in electronic related industries.

At the same time, from the experience of 2011, the international spillover effect is limited and concentrated.

In 2011, the global spillover effect is mainly concentrated in the automobile industry. Surat pointed out that in the areas where Japanese auto enterprises have moved out of factories, as well as the areas where the local auto industry relies heavily on Japanese parts, such as Thailand, Malaysia, etc., the output has declined significantly, but the impact on the auto industry of other developed economies is small.