Eurozone: gauging possible supply chain disruptions from Covid-19

As Covid-19 goes global, supply chain risks to the eurozone economy have increased materially. Our analysis finds risks to the eurozone mainly come from China and Italy.

Supply chain exposure in value terms is not linear. An essential input but low in value could still cause the shutdown of an entire supply chain if unavailable. The exposure in terms of value-added should be seen as indicative for the potential number of essential parts in a supply chain produced by the affected countries.

As the impact on total GDP seems small, one might think that the impact will be minor, but small disruptions can cause disruptions in production much larger than suggested by these numbers.

This is why it is difficult to gauge where production will be disrupted most, but differences in exposure to China, Korea and Italy show which countries and sectors on average have a higher chance of being affected.

As coronavirus spreads, one big question is how much will the eurozone economy be impacted. Obviously, there are several channels through which the eurozone economy will be affected - for example, weaker demand from China and other Asian countries, the impact of preventive measures and increased uncertainty in general. But supply chain disruptions are a big one. As factories shut down, production becomes increasingly fragmented worldwide, and this can have a significant impact on eurozone production.

To gauge the eurozone's overall supply chain exposure to Covid-19, we use eurozone value chain exposure to four countries that have seen the most cases of the virus except Iran. This leaves China, Korea and Italy.

Read the entire article on THINK, our economic and financial analysis website.