The shock of bottlenecks on Spanish industry
Disruptions in global supply chains, present in markets since the end of 2020 due to the reactivation of demand after the worst phases of the pandemic, and later due to the effects of the war in Ukraine and the persistence of COVID-19 in Asia, affected activity in some manufacturing branches throughout the second half of 2021 and, above all, in 2022. In some sectors, the most intense episodes of difficulties for international trade forced production to be cut back on an ad hoc basis, or even to come to a halt. Logically, those industries most dependent on imports of raw materials and/or intermediate goods for their production processes, as well as those with greater complexity in their value chains, suffered the most.
According to data from the quarterly business sentiment survey produced by the European Commission,14 the proportion of companies reporting shortages of materials or equipment stood at 22.0% in the second half of 2021 and 26.4% in 2022. In both cases, these rates are much higher than the historical average (5.3% between 1995 and 2019). So, without any doubt, manufacturing was clearly affected by the disruptions in the global supply chain, although early data for 2023 suggest that supply problems are easing.
The manufacturers of paper, metals, computers, electrical equipment and, above all, motor vehicles suffered particularly from supply shortages in 2022 (see the table below), due to delays in the shipment of metal parts and the shortage of microchips or semiconductors, of vital importance for the manufacture of new models and whose production is relatively inelastic. In terms of technology content, these products are both low/low-medium (paper, metals) and high/medium-high (computers, electrical equipment, motor vehicles).
- 14. This examines the proportion of companies reporting shortages of materials or equipment as a limiting factor in production. The latest available data for Q1 2023 have been relatively favourable, with few sectors reporting more stress: food, beverages, textiles and pharmaceuticals.
The manufacturers of paper, metals, computers, electrical equipment and motor vehicles suffered particularly from supply shortages in 2022.
Companies reporting lower production due to shortages of materials
(% of all companies)
Trend in the manufacturing industry
To analyse the extent of the impact of bottlenecks on Spanish industry, we have used the import volume data registered with Customs, broken down by manufacturing branch. We can use these data to analyse the extent to which the five sectors we’ve identified as particularly hard hit reduced their volume of foreign purchases, presumably as a result of the disruptions in the global supply chain.
The chart below summarises how imports in these branches have performed since 2019. Particularly of note are the imports by the IT branch, which grew considerably in 2020 (+20% annually) thanks to demand created by the great advances made in digitalisation forced by the pandemic in many sectors of production (adaptation to e-commerce and teleworking systems). However, 2022 saw the most visible effects of the disruptions in the semiconductor market during the so-called «microchip crisis», with the IT industry becoming one of the sectors hardest hit by the bottlenecks, its imports falling by around 50% compared to 2019.
The performance of the automotive industry is also worth mentioning, this branch reporting the biggest problems due to lack of supply, largely because of the semiconductor shortage. Consequently, the drop in automotive imports in 2022 was also considerable, 21% lower than in 2019. Specifically, vehicle components and parts were the products that suffered most from the impact of bottlenecks in 2022, with imports, which are key to the proper functioning of factories in Spain, falling by 24% compared to 2019. However, imports of finished vehicles were also hit hard, posting a 20% drop compared to 2019 although they improved their position in relation to 2021 (when imports were down 32% compared to 2019).
Finally, imports by the metal manufacturing industry also suffered from the effects of bottlenecks. In this case, the 8.5% drop posted in 2022 was directly associated with the war in Ukraine and trade sanctions against Russia, one of the world’s leading producers of metal ores. Despite the high proportion of companies reporting problems of shortages, there was no decline in the volume of imports among the other branches.
Imports by activity branch
Vehicle components and parts were the products that suffered the most from the impact of bottlenecks in 2022, with a decline in imports, which are key to the proper functioning of factories in Spain.
As noted at the beginning, much of the disruption in the global supply chain was caused by the pandemic but especially by the way China handled it. Its zero COVID policy, implemented until early 2023, resulted in long lockdowns and restrictions on people’s movement in large cities, with the consequent difficulties in transport services and production centres. Due to international industry’s huge exposure to the Chinese market and the trade problems and tensions it has caused in recent years,15 people are once again starting to wonder whether production processes should be relocated and suppliers diversified in order to also diversify the industry’s supply risks.
Although this is a logical strategy in theoretical terms, an analysis of the most recent trends in the sector suggests that this change in the supplier mix is not taking place; in fact, rather the opposite. If we focus our analysis on imports of electronic components into the EU as a whole, where bottlenecks have been very intense, we can see a huge concentration of imports from China which continued to intensify in 2022. As seen in the chart below, 85% of all EU imports of electronic components came from China, a considerable increase when compared to the Asian country’s share in 2019, namely 66%. China’s greater share has been achieved to the detriment of the rest of the EU’s main suppliers, both in the case of Western countries (mainly the US) and the emerging countries of South-East Asia (especially Vietnam, Malaysia and Thailand).
- 15. See the Focus «EU and China: mapping out a strategic interdependence» published in the May 2022 Monthly Report.
EU imports of electronic components
While this greater concentration of Chinese imports could be a risk factor should disruptions in global supply chain remain high, most of the indicators used to gauge the intensity of bottlenecks suggest that these have been clearly diminishing since the end of 2022. For example, container cost indices, which reflect the rates and management of tariffs for freight forwarders and carriers for international cargo and indicate the ease of transporting goods internationally, have been at levels similar to 2019 since the beginning of 2023. The New York Federal Reserve’s monthly index of global supply chain pressures16 is also below 0 (i.e., below its long-term average) and in March 2023 was at its lowest level since August 2009.
- 16. The Global Supply Chain Pressure Index (GSCPI) integrates a number of commonly used metrics with the aim of providing a comprehensive summary of potential supply chain disruptions. Global transportation costs are measured by employing data from the Baltic Dry Index (BDI) and the Harpex index, as well as air freight cost indices from the U.S. Bureau of Labor Statistics. The GSCPI also uses several supply chain-related components from Purchasing Managers’ Index (PMI) surveys.
Pressures on global supply chains
On balance, bottlenecks have posed a significant problem for some branches of Spain’s manufacturing industry, with a particularly localised impact on the automotive industry and computer manufacturers. However, despite the huge difficulties faced by these industries, China’s relative weight as a supplier of electronic products is still growing, so our exposure continues to be significant. Nevertheless, the factors behind the disruptions in the supply chain are easing, especially now that China has reopened to trade. Looking ahead to 2023, we expect this improvement in conditions to consolidate, so that manufacturing will leave behind one of the major problems of the past two years, thereby achieving an important growth lever.