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Supply and demand mismatch weighs on global recovery

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Supply and demand mismatch weighs on global recovery

Good evening

As the FT Editorial Board has pointed out, disruptions to supply chains around the world are a demonstration of how demand has recovered from the pandemic much more quickly than supply.

This mismatch was on show again today in IHS Markit’s PMI manufacturing surveys for October. In the UK, while the overall reading edged up from 57.1 to 57.8, the components measuring output and delivery times both pointed to a slowing recovery as supply chain delays and shortages of raw materials and staff constrained production. Rises in input prices accelerated, feeding through to the biggest jump in output charges in the survey’s history.

There were also some positive notes, according to Rob Dobson, Director at IHS Markit. “A slight improvement in new order growth, led by the domestic market, suggests the trend in demand is stabilising following its recent slowdown,” he said. Businesses also remain relatively optimistic about the year ahead, Dobson added.

In the US, where the manufacturing headline figure dipped from 60.7 to 58.4, there was a similar tale of output growth being held back by shortages and severe supply delays, although new orders remained historically strong.

Meanwhile in China, manufacturing activity shrunk for a second straight month, with the PMI figure falling to 49.2, below the 50-point threshold that indicates expansion rather than contraction. The world’s second-biggest economy is battling against a property sector downturn, high commodity prices and widespread energy shortages: official data two weeks ago showed economic growth in the third quarter falling to its slowest pace in a year.

Supply bottlenecks, which have been a common theme among companies reporting third-quarter earnings over the past few weeks, have caused US warehouses to start running out of space as rebounding consumer demand has led to record imports through ports. Imports at New York and New Jersey — the third largest in the country — were 26.4 per cent higher for the year to August than for the same period in 2020.

Delays from strained supply chains could have far-reaching effects. The head of one US warehouse operator said that once people experience the expected delays to holiday deliveries, “they’re going to change their consumer habits, and we don’t quite know how”.

The best way to keep supply growing and prevent bottlenecks from recurring or shortages from becoming permanent is through capital spending, the FT argues, and should be encouraged by generous tax relief, along the lines of Britain’s “super deduction”. Or as the FT puts it: “The best way to avoid bottlenecks is to get a wider bottle.”

Latest news

  • The US Covid-10 co-ordinator said 80 per cent of American adults had now received at least one vaccine jab, with 70 per cent now fully vaccinated (Reuters)

  • Greece recorded 5,449 new coronavirus infections in the past 24 hours, the highest single-day figure since the pandemic began (Reuters)

  • Moderna shares dropped after its Covid-19 shot failed to secure US regulatory authorisation for teenagers (Bloomberg)

For up-to-the-minute news updates, visit our live blog

Need to know: the economy

The global death toll from Covid-19 has now topped 5m, led by the US and Brazil, although experts argue the true figure could be much higher. The vaccine gap between rich and poor countries remains huge: less than 4 per cent of the population in low-income countries has received at least one shot.

It’s a big few days for central banks as they ponder the beginning of the end of pandemic crisis policies. On Wednesday, the US Federal Reserve is widely expected to announce a tapering of its bond purchase programme and on Thursday the Bank of England could start increasing interest rates from their historic lows. Central banks in Norway, Poland and Australia also meet this week. Bond traders are betting on a “big shift” in global monetary policy.

Latest for the UK and Europe

Chief economics commentator Martin Wolf says Chancellor Rishi Sunak offers no clear plan for faster, greener growth or tackling the many challenges facing the UK economy. Retailers in England, already suffering from the effects of the pandemic and the shift to online shopping, look set to have their hopes of lower business rates dashed.

Turkish leader Recep Tayyip Erdogan is coming under increasing pressure over his idiosyncratic approach to managing Turkey’s $765bn economy, reports local correspondent Laura Pitel in our Big Read. Inflation almost hit 20 per cent in September, the country’s currency is losing value, and opposition leaders think Erdogan is vulnerable in elections scheduled for 2023, but which could yet be brought forward.

Global latest

New developments in the energy crisis include the Ukraine gas chief accusing Russian President Vladimir Putin of using gas as a “geopolitical weapon” and French president Emmanuel Macron warning in an FT interview that the crisis posed a real threat to the global economy. Even as G20 leaders agreed on Sunday to stop international financing of coal power, usage at US power stations is set to rise by 20 per cent this year. Tensions are also rising over a proposed new deep coal mine in the north of England. Follow our live coverage of the COP26 climate summit here.

Brazil’s far-right leader Jair Bolsonaro has not only bungled the country’s response to the pandemic, argues the FT Editorial Board: he has also proved incapable of managing the economy. Recovery in Mexico, Latin America’s biggest economy after Brazil, is also fragile: growth has stalled and supply chain problems are mounting, as are criticisms of the government’s policies.

Need to know: business

Lloyd’s of London, the centuries-old insurance market, is the subject of intense debate over whether changes in working practices during the pandemic offer a unique chance for a permanent overhaul. The global financial centre has traditionally prized the value of face-to-face contact, especially in its historic underwriting room, home to the Lutine Bell and the Loss Book, where lost ships are recorded.

Electronic trading has increased

Jaguar Land Rover is the latest carmaker to be hit by the global chip shortage, reporting a pre-tax loss of £302m for the quarter, compared with a profit of £65m a year earlier. The crisis is, however, good news for carmakers’ finance arms, which have managed to cash in on the booming second-hand market. Used car prices in many cases are higher than for their factory-fresh counterparts.

The number of air passengers is gradually ticking upwards but airlines are having problems coaxing back the high-spending first-class travellers who generate so much of their revenues. The booming market for private jets shows that some have switched from commercial aircraft altogether during the pandemic.

Line chart of Change in passenger numbers vs 2019 (%)  showing Travellers have been slow to return to premium cabins

The World of Work

Columnist Pilita Clark discusses new studies showing companies may be inadvertently making their workforces whiter by forcing them back to the office. People of colour prefer to work at home for a number of reasons, researchers say, including less need to change the way they talk, dress or behave to fit into a predominantly white workplace.

Do new patterns of work mean our existing tax laws are no longer fit for purpose? Should UK employees regularly working from home, for example, be allowed to claim transport costs against tax when they travel to the office? And what about those working from home in a different country to their employer — such as those living in Ireland but working for Northern Irish companies? “Tax rules need urgent updating to reflect the reality of hybrid working,” said one expert. “HMRC’s [the UK tax authority] interpretation of a workplace is stuck in the 1950s.”

Get the latest worldwide picture with our vaccine tracker

And finally…

Halloween may have focused our thoughts on the afterlife but what if we could actually live forever? Science commentator Anjana Ahuja examines whether new developments mean longer lifespans are finally possible — and at what cost.

Published at Mon, 01 Nov 2021 18:15:04 +0000

https://www.ft.com/content/faaa5a8a-bd8a-47cd-b14d-5f7a5f2e1660

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