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Research Announcement:

Moody's - Pandemic will accelerate shift in trade relationships and global supply chains

 The document has been translated in other languages

11 August 2020


Singapore, August 11, 2020 --

  • Supply chains will become more robust, fragmented and regionally focused
  • Ensuring supply security will drive supply chain shifts, with the largest shifts in strategically important sectors such as pharmaceuticals

Moody's Investors Service says in a new report that the coronavirus pandemic will likely accelerate fundamental shifts in trade relationships and supply chains globally, with in particular some Asian economies to benefit from diversification away from China (A1 stable).

"Ensuring supply security by enhancing the strength of supply chains will become the overarching objective of governments and companies, overtaking cost and efficiency considerations," says Michael Taylor, a Moody's Managing Director and Chief Credit Officer for Asia Pacific.

"The Asian countries that stand to benefit from diversification are those with sound economic fundamentals, reliable infrastructure, sufficient human capital stock, and low geopolitical and supply security risk," adds Taylor.

Moody's expects supply chains will become shorter and less just-in-time, leading to a more fragmented global trade system with a greater range of suppliers for similar products and increased regionalization of production.

Diversification will aim to reduce reliance on any single supplier, whether a single producer or a group of producers from the same country, while localization will aim to relocate production close to home markets.

The level of supply security, the degree of reliance on a single supplier, and other factors including the economic fundamentals of the new production base and geopolitical considerations will shape supply chain strategies and the choice of location.

The extent of supply chain shifts will vary by sector depending on the overarching consideration of security of supply, with the largest shifts occurring in industries with the greatest strategic significant, such as pharmaceuticals.

The credit implications for Asian export oriented economies and producers will vary. Some Asian markets ex-China will benefit from supply chain shifts, particularly as companies look to diversify their sources of supply. However, localization of production or reshoring that moves productive capacity out of the region to the US (Aaa stable) or the European Union (Aaa stable) will have negative effects for Asian producers, notably those in strategic sectors. Free trade agreements could help mitigate some of these effects by offering producers preferential access to advanced markets.

Subscribers can access the report "Trade - Global: COVID-19 will accelerate supply chain shifts in a more fragmented trade system" at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1235036

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at [email protected] or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Michael Taylor
MD-Credit Strategy
Credit Strategy & Standards
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Lillian Li
VP-Sr Credit Officer/CSR
Credit Strategy & Standards
MIS Beijing Shanghai Branch
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Releasing Office :
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore, 048623
Singapore
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

© 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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