The challenges in supply chains resulting from the Covid-19 pandemic and Russia's attack on Ukraine could cost European economies around €920 billion of their gross domestic product (GDP) by 2023. This is according to a recent study by the consulting firm Accenture.
The report published at the annual meeting of the World Economic Forum in Davos Study analyses three possible scenarios for how the war could develop in the coming year, and models the impact of each scenario on the eurozone in terms of costs and the time frame for recovery.
According to the study, supply chain disruptions related to Covid-19 cost the eurozone economies around 112.7 billion euros in lost GDP in 2021. Even before the war, material shortages, disruptions in logistics and inflationary pressure undermined the economic recovery in Europe, The resurgence in demand and the precautionary hoarding of products overstretched supply chains.
Russia's invasion of Ukraine has exacerbated the situation. For example, the shortage of semiconductors, which was expected to ease in the second half of 2022, is now expected to last into 2023. A protracted war could to a further loss of up to 318 billion euros in 2022 and 602 billion euros in 2023, while inflation could be as high as 7.8 per cent in 2022 before falling in 2023.
„Although experts agree that Europe will avoid a recession this year, the combination of Covid-19 and the war in Ukraine has the potential to significantly impact the European economy and cause a substantial slowdown in growth. While some normalisation of supply chains was expected in the second half of 2022 before the war, we now do not expect it before 2023, maybe not even before 2024, depending on how the war develops.“
Jean-Marc OllagnierCEO of Accenture in Europe.
Solving supply chain problems will be crucial for Europe's competitiveness and growth. According to the study up to 30 per cent of total value added in the eurozone depends on functioning cross-border supply chains, either for material procurement or as a destination for production.
The study suggests that supply chains need to be reinvented to reflect a paradigm shift. Supply chains were primarily designed to optimise costs. In today's world they must also be resistant and flexible, to be able to react to increasing supply uncertainties. At the same time, they will become an important competitive advantage to enable future growth. The focus here is on three key areas:
„Transparency in supply networks, including Tier 2 and Tier 3 suppliers, is crucial. Companies must Move from a just-in-time to a just-in-case approach, by diversifying their supply base, planning alternative freight routes, organising their distribution centres flexibly and building up stocks. This comes at a cost, but it is a form of ‚insurance‘ against future shocks. The key is investing in new technologies to make better use of data - from digital twins and analytics to supply chain control instances - as well as the cloud continuum, which provides enormous computing power in a cost-effective, flexible and sustainable way.“
Kris Timmermans, Head of Supply Chain & Operations at Accenture
The study also highlights two more profound and longer-term challenges arising from the pandemic and the war: firstly energy security, as European economies need to address their heavy dependence on oil and gas supplies while accelerating their net-zero agenda, and the Imbalance of available talent, This is the result of an ageing population, changing employee expectations and changing skill requirements.
„The war in Ukraine will increase the number and duration of disruptions in supply chains. The extent will depend on how the war develops. Nothing less than reinvention is required as the inflationary environment, increasing regionalisation, the energy transition and a tight talent market are already shaping a new economic order. To achieve more security, it will be crucial to improve energy efficiency and accelerate the transition to environmentally friendly energy sources. In addition, the ability to recruit, retain, retrain and upskill employees is becoming one of the most pressing issues of this decade.“
Michael Brueckner, Chief Strategy Officer at Accenture in Europe
Source: Accenture
