IHS Markit: Russia-Ukraine war to further exacerbate Europe's supply chain problems

Energy-dependent sectors especially in oil refining and power generation, transport services, basic metals and chemical industries will be affected as Europe uses Russia as input provider

Energy-dependent sectors especially in oil refining and power generation, transport services, basic metals and chemical industries will be affected as Europe uses Russia as input provider

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KUALA LUMPUR (March 18): IHS Markit, part of S&P Global, said while some supply chain tensions have eased recently, the risks are rising again.

In a report titled "European supply shock: Sectors and countries at most risk" on its website on Thursday (March 17), the firm said some sectors and countries are more vulnerable due to materials and labour shortages and surging prices.

It said the Russia-Ukraine war will further exacerbate supply chain problems affecting commodity prices as well as energy-dependent and related industries.

IHS Markit said the European Union (EU) is already facing record high shortages of materials and labour, and soaring producer prices.

It said that energy-dependent sectors especially in oil refining and power generation, transport services, basic metals and chemical industries will be affected as Europe uses Russia as input provider.

Meanwhile, production in the automotive sector, various machinery and equipment — sectors which also have one of the longer global value chains (GVC) — semiconductors and construction will be affected by metal supply.

The firm said delivery times and input price growth eased, but material and labour shortages are at the historical highs in the EU involving industry, construction and services.

Citing the European Commission Business Survey, IHS Markit said more than 50% of industrial companies in the EU are facing such material and equipment shortages that they are limiting their production.

Shortages of labour and materials have also risen significantly in construction.

Moreover, it said the Russia-Ukraine war will also affect transportation and supply of raw material, such as energy, food and metals, and have a negative impact on production and prices.

Sectors faced with extremely high shortages

IHS Markit said the most strongly affected industries are manufacturing of motor vehicles, trailers, and semi-trailers; electrical equipment; machinery and equipment; and computer, electronic, and optical products as a majority of companies operating in those sectors are facing high shortages.

Germany and France have the highest share of companies in those sectors reporting production-impeding shortages, it said.

It said the Russia-Ukraine conflict will further exacerbate supply chain disruptions through effect on transportation and availability, and prices of inputs.

It added that the war has already resulted in soaring energy prices, and affected the prices of metals and agricultural commodities, for which Russia and Ukraine are important players.

"Europe uses Russia as an input provider, especially in oil refining and power generation, transport services, basic metals and chemical industries," it highlighted.