The added inflationary risk factor threatens to slow down the growth of EU economies, all of which are highly dependent on raw materials imports.
One of the more concrete risks threatening the economic recovery in the EU is the impact shortages of raw materials and capital goods are having on manufacturing. Global economic activity thawing along with a sharp rise in consumption along with tensions in shipping have resulted in shortages and a rise in prices for basic materials, especially in sectors such as semiconductors, chemicals, plastics, and wood. Due to this perfect storm, bottlenecks have appeared in the industry -the automotive industry was one of the first to experience them – which is not affecting all economies equally, but which together is damaging the activity of 40% of European manufacturers. While the percentage of companies affected in Germany reaches 70%, it is only 22% in Spain.
The sharp drop in supply of raw materials and capital goods coupled with the strength of demand has created a cyclical imbalance, but if the bottleneck in factory production continues to affect other branches of activity, such as transportation, wholesale trade, and some professional services, its effects may be very serious.
The ebbs and flows of the market can correct some of these dysfunctions, but others are due to tariff policies and import quotas which must be redesigned in order to better align the production and transportation of goods to the real needs of the economies. Raw material price increases are a concern that is affecting the whole of Europe and are seen as an inflationary risk that may slow the growth of the Community economies, which are all highly dependent upon imports. Therefore, it seems reasonable to think about a comprehensive European strategy to guarantee the supply of industry and protect the EU from an event that could undermine the recovery.