Supply disruptions add to inflation, undermine recovery in Europe: IMF

Challenge for policymakers is to support recovery without allowing inflation to become entrenched, economists say

By Ovunc Kutlu

ANKARA (AA) - The International Monetary Fund (IMF) said Thursday that supply disruptions add to inflation and undermine recovery in Europe.

"With supply constraints likely to persist, the challenge for policymakers is to support recovery without allowing high inflation to become entrenched," IMF economists Kristalina Georgieva, Oya Celasun and Alfred Kammer wrote in a blog post.

During the coronavirus pandemic, consumers cut spending on services and instead bought more manufactured goods as a result of quarantine measures, noted the economists.

The reopening of economies boosted manufacturing output but renewed lockdowns and shortages of intermediate inputs from chemicals to microchips caused the factory recovery to stall, they wrote.

Prices of core consumer goods, in addition, rose rapidly as delivery times reached record highs, according to the economists.

The economists estimate euro area manufacturing output in the fall of 2021 would have been around 6% higher without supply constraints.

Gross domestic product (GDP) also would have been approximately 2% higher, which is equivalent to about one year’s worth of growth in normal pre-pandemic times for many European economies, they said.

"Globally, we find that up to 40% of the supply constraints in manufacturing can be traced to shutdowns, which should have only transient effects on inflation," they wrote.

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