Supply Still Sticky

he Boston-based consultancy IHS Markit predicts the economic recovery that began when vaccines were rolled out in earnest won’t be halted by the latest variant, omicron. However, the growth seen across the planet during 2021 won’t likely be matched in 2022.

At the top of its list of predictions for the year, IHS Markit analysts believe that new waves of COVID-19 will not derail the recovery. “The subsequent spread in new cases and the emergence of the omicron variant signal a transition from pandemic to endemic,” Elisabeth Waelbroeck Rocha, chief international economist, said in a Dec. 20 report.

As COVID-19 spreads, government responses will focus on avoiding stress in the health care system and encouraging vaccination. “While general lockdowns will be avoided, service activities will remain constrained until effective and affordable cures become available and make further restrictions unnecessary,” Waelbroeck Rocha said.

Shipping disruptions, “supply stickiness” and rising energy costs will continue to exert upward pressure on prices in the first half. “Logistics bottlenecks will only be resolved later in the year as demand for goods moderates and traffic normalizes.” Higher oil and natural gas production are expected to alleviate energy price pressures. Wages will respond temporarily to labor market pressures in the U.S. with little lasting effect on inflation. Year-on-year inflation rates will thus slow by the end of 2022.

IHS Markit also predicts that the pace of the global expansion will moderate, with regional differences. “As supply-side disruptions ease, and barring negative surprises, growth will temporarily pick up, with the more industrial and trade-sensitive economies or regions to benefit most.”

U.S. GDP growth will slow to 4.3 percent in 2022 from a significantly above-trend pace of 5.7 percent in 2021, as a result of waning effects of the prior stimulus, withdrawal of monetary accommodation and satisfaction of pent-up demand.

Within one of the largest metal-consuming sectors—automotive—IHS Markit predicts “the path of the pandemic remains an important driver of the 2022 auto demand cycle, especially the race between vaccine and variants,” Colin Couchman, executive director for global light vehicle forecasting, said Dec. 16.

U.S. vehicle sales volumes are expected to reach nearly 15.5 million units this year, up by about 2.6 percent from 2021’s estimated 15.1 million units. “For 2022, the pace of sales is expected to quicken in the second half. Given current inventory conditions, it’s difficult to project significant demand recovery in the first half,” according to Chris Hopson, manager, North American light vehicle sales forecast.

“Overall, constraints within the semiconductor supply chain remain the single most influential feature of the forecast,” said Mark Fulthorpe, executive director of light vehicle production forecasts. “Threats elsewhere within the supply chain could become more apparent as chip supplies improve, notably logistics, worker-related issues and key raw materials shortages,” he warned.

North American steel supply is not expected to be problematic during 2022. We have yet to measure the volume of new melt shop and rolling capacity that will come on line this year. Stay tuned.