While global trade flows have adjusted following the Covid-19 pandemic, establishing more varied supply chains will help soften the impact from future shocks, the International Monetary Fund said.
Further diversification of inputs across countries and making inputs from different countries more replaceable can help build resilient supply chains, the Washington-based fund said in a blog post on Tuesday.
“Disruptions wrought by the pandemic led to calls for more domestic production of goods (reshoring),” the IMF said. Its latest World Economic Outlook reveals that “dismantling global value chains is not the answer — more diversification, not less, improves resilience".
The damage to international trade triggered by Russia's military offensive in Ukraine and the continuing pandemic has increased awareness among governments and companies that they need more resilient supply chains.
The World Trade Organisation projects that the Russia-Ukraine crisis could lower global gross domestic product growth by 0.7 to 1.3 percentage points, bringing growth to between 3.1 per cent and 3.7 per cent for 2022, it said in an April 11 report.
The organisation revised down its forecast for global trade growth this year to 3 per cent from 4.7 per cent earlier owing to the Russia-Ukraine war, it said on Tuesday. Global trade growth in 2023 is expected to be 3.4 per cent.
The IMF's analysis shows that diversifying the supply chain can significantly reduce global economic losses after disruptions.
After a sizeable labour supply contraction of 25 per cent in a single large global supplier, GDP for an average economy “falls by 0.8 per cent” under the baseline. In the high-diversification scenario, this decline is reduced by almost half, it said.
“Most of this benefit accrues to countries other than the source country, as higher diversification makes them less dependent on intermediates produced by the source country. The source country also benefits, as diversification makes it less dependent on domestic sources."
Higher diversification also reduces volatility when several countries are hit by supply shocks.
The fund estimates that the volatility of economic growth in the average country is reduced by about 5 per cent in this scenario.
However, diversification offers little protection when a major disruption hits all economies at the same time, like during the first four months of the pandemic, the IMF said.
With greater substitutability, GDP losses in all countries — other than the source country — are reduced by about four fifths, it found. Substitutability in this case refers to how easy it is for a producer to switch inputs from a supplier in one country with those from another country.
Ensuring equitable access to vaccines and treatments remains the first priority among policies recommended by the IMF.
“Recent targeted lockdowns in China are a reminder that pandemic-related restrictions continue to have an impact far beyond the affected country,” the IMF said.
Improving infrastructure is also critical to mitigate supply disruptions related to trade logistics.
For example, upgrading and modernising port infrastructure on key global shipping routes would help reduce global “chokepoints". Better digital infrastructure to facilitate telework can also help mitigate spillovers to other countries.
Finally, reducing trade costs can help diversify inputs, the IMF said.
Reducing non-tariff barriers would give a significant medium-term economic boost, especially in emerging markets and low-income developing countries, it said.
Lowering trade policy uncertainty and providing an open and stable trade policy regime can support greater diversification, it added.
At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
UAE currency: the story behind the money in your pockets
The specs
Engine: Direct injection 4-cylinder 1.4-litre
Power: 150hp
Torque: 250Nm
Price: From Dh139,000
On sale: Now
Try out the test yourself
Q1 Suppose you had $100 in a savings account and the interest rate was 2 per cent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a) More than $102
b) Exactly $102
c) Less than $102
d) Do not know
e) Refuse to answer
Q2 Imagine that the interest rate on your savings account was 1 per cent per year and inflation was 2 per cent per year. After one year, how much would you be able to buy with the money in this account?
a) More than today
b) Exactly the same as today
c) Less than today
d) Do not know
e) Refuse to answer
Q4 Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”
a) True
b) False
d) Do not know
e) Refuse to answer
The “Big Three” financial literacy questions were created by Professors Annamaria Lusardi of the George Washington School of Business and Olivia Mitchell, of the Wharton School of the University of Pennsylvania.
Answers: Q1 More than $102 (compound interest). Q2 Less than today (inflation). Q3 False (diversification).
How the UAE gratuity payment is calculated now
Employees leaving an organisation are entitled to an end-of-service gratuity after completing at least one year of service.
The tenure is calculated on the number of days worked and does not include lengthy leave periods, such as a sabbatical. If you have worked for a company between one and five years, you are paid 21 days of pay based on your final basic salary. After five years, however, you are entitled to 30 days of pay. The total lump sum you receive is based on the duration of your employment.
1. For those who have worked between one and five years, on a basic salary of Dh10,000 (calculation based on 30 days):
a. Dh10,000 ÷ 30 = Dh333.33. Your daily wage is Dh333.33
b. Dh333.33 x 21 = Dh7,000. So 21 days salary equates to Dh7,000 in gratuity entitlement for each year of service. Multiply this figure for every year of service up to five years.
2. For those who have worked more than five years
c. 333.33 x 30 = Dh10,000. So 30 days’ salary is Dh10,000 in gratuity entitlement for each year of service.
Note: The maximum figure cannot exceed two years total salary figure.
The specs
Engine: 1.5-litre turbo
Power: 181hp
Torque: 230Nm
Transmission: 6-speed automatic
Starting price: Dh79,000
On sale: Now
UAE currency: the story behind the money in your pockets
ICC Women's T20 World Cup Asia Qualifier 2025, Thailand
UAE fixtures
May 9, v Malaysia
May 10, v Qatar
May 13, v Malaysia
May 15, v Qatar
May 18 and 19, semi-finals
May 20, final
UAE currency: the story behind the money in your pockets
'Brazen'
Director: Monika Mitchell
Starring: Alyssa Milano, Sam Page, Colleen Wheeler
Rating: 3/5
UAE currency: the story behind the money in your pockets
Off-roading in the UAE: How to checklist
Ireland v Denmark: The last two years
Denmark 1-1 Ireland
7/06/19, Euro 2020 qualifier
Denmark 0-0 Ireland
19/11/2018, Nations League
Ireland 0-0 Denmark
13/10/2018, Nations League
Ireland 1 Denmark 5
14/11/2017, World Cup qualifier
Denmark 0-0 Ireland
11/11/2017, World Cup qualifier
Strait of Hormuz
Fujairah is a crucial hub for fuel storage and is just outside the Strait of Hormuz, a vital shipping route linking Middle East oil producers to markets in Asia, Europe, North America and beyond.
The strait is 33 km wide at its narrowest point, but the shipping lane is just three km wide in either direction. Almost a fifth of oil consumed across the world passes through the strait.
Iran has repeatedly threatened to close the strait, a move that would risk inviting geopolitical and economic turmoil.
Last month, Iran issued a new warning that it would block the strait, if it was prevented from using the waterway following a US decision to end exemptions from sanctions for major Iranian oil importers.
Terminator: Dark Fate
Director: Tim Miller
Starring: Arnold Schwarzenegger, Linda Hamilton, Mackenzie Davis
Rating: 3/5
FFP EXPLAINED
What is Financial Fair Play?
Introduced in 2011 by Uefa, European football’s governing body, it demands that clubs live within their means. Chiefly, spend within their income and not make substantial losses.
What the rules dictate?
The second phase of its implementation limits losses to €30 million (Dh136m) over three seasons. Extra expenditure is permitted for investment in sustainable areas (youth academies, stadium development, etc). Money provided by owners is not viewed as income. Revenue from “related parties” to those owners is assessed by Uefa's “financial control body” to be sure it is a fair value, or in line with market prices.
What are the penalties?
There are a number of punishments, including fines, a loss of prize money or having to reduce squad size for European competition – as happened to PSG in 2014. There is even the threat of a competition ban, which could in theory lead to PSG’s suspension from the Uefa Champions League.
