Semiconductor chips, no substitutes

Semiconductor chips may not have substitutes, which has affected industries that require these intermediate goods and has generated bottlenecks, according to an analysis released by the Bank for International Settlements (BIS).

In a production process, bottlenecks are a slower phase of the production chain than others, causing the global production process to slow down.

Over the past few years, bottlenecks in tradable industries have international spillovers.

On average, according to the BIS, about half of the decline in production due to bottlenecks in energy raw materials or semiconductors occurs outside the country of origin.

In contrast, most of the impact of bottlenecks in non-tradable sectors, such as construction, does not extend abroad. Adaptation could reduce the impact of bottlenecks.

On an introductory level, the BIS indicates that substitutes may be available for some items affected by bottlenecks.

For example, rising natural gas prices have already prompted some power companies to increase their coal-fired power generation.

For the BIS, this suggests that the economic impact of energy bottlenecks in Europe and China may not be as severe and, in fact, may generate income gains for producers of energy products when demand increases.

Semiconductor chips

Similarly, some companies have started using air freight to avoid shipping delays.

US ports have extended their working hours to cope with increased demand. However, substitutes are not a panacea and can create their own bottlenecks (as in these examples for coal and air travel).

And for some goods, such as semiconductor chips, substitutes may not exist, indicating more persistent bottleneck effects for countries with large auto industries.

Bottlenecks in the most upstream industries can have particularly significant effects.

In particular, the BIS highlights that calculations based on a global input-output matrix indicate that the decrease in production due to a restriction in the supply of energy raw materials or semiconductor chips is on average 3.5 to 4.5 the size of the impact. initial.

Output multipliers for more downstream industries, such as hosting services, are closer to 2.

To put these figures in perspective, they imply that, on average, a 10% contraction in global semiconductor chip production would reduce global GDP by about 0.2 percent.

The effects could be greater due to the bullwhip effects that arise from behavioral changes and for economies that rely heavily on semiconductor chips.

An analyst estimate suggests that a shortage of chips could reduce car production in 2021 by 7.7 million units, with everything else the same (equivalent to 8% of pre-pandemic production).

For Germany, where the automotive industry accounts for 6% of GDP, this would be equivalent to 0.5% of GDP.