According to the “Japan Economic News” reported on August 8, global commodity demand is falling. According to the manufacturing-related index, 70% of the world’s 29 major countries and regions are contracting business activity. The supply chain balance has been disrupted by commodity shortages on a scale comparable to the Lehman crisis in 2008. A shift in consumption from goods to services and sluggish demand in Asia are also having an impact. Whether the service sector alone can support huge employment has become a focus.

According to the Japan Maritime Center, since 2023, the number of shipping containers sent from Asia to the United States has fallen by 20% to 30% year-on-year. A major container shipping company said that while demand exists, retailers’ excess inventory has not been absorbed enough to drive new production increases and shipments.

Supply chain constraints that put inflationary pressure on the world have all but been lifted. The adjustment of epidemic prevention policies in East Asia has greatly contributed to the return of economic activity to normal. For the manufacturing industry, this is conducive to the improvement of production processes such as parts procurement. However, at present, this positive factor is not fully utilized, because of the lack of real demand.

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Market participants pay close attention to the Global Supply Chain Stress Index (GSCPI) released monthly by the Federal Reserve Bank of New York. It is calculated based on sea freight costs as well as supply chain related items in the Purchasing Managers’ indices (PMIs) of major countries. It is based on zero, and a positive value indicates that the supply chain is tighter than normal, and there are supply constraints. A negative value indicates that reduced demand leads to fewer goods available for transport, disrupting the supply and demand balance in the supply chain.

The GSCPI for July, released on August 4, was -0.9, below 0 for six consecutive months. In May this year, the index was close to the all-time low of -1.59 set in November 2008. With the Lehman crisis, the U.S. economy fell into recession, financial institutions had no room to lend, and demand for durable consumer goods such as cars evaporated.

Demand for goods has surged as the coronavirus pandemic has driven home spending. The US Standard & Poor’s global commodities company shipping analysis survey experts pointed out that the end of the epidemic has shifted people’s consumption pattern from goods to travel and other services, which has a greater impact on the current decline in demand.

In addition, some believe that the monetary tightening policies of central banks in advanced countries are also to blame. Central banks’ aggressive lending during the pandemic has inflated asset prices and fuelled overconsumption. Now aggressive interest rate hikes have led to a credit contraction, causing demand to fall.

Domestic demand in Asia is recovering less than expected. French cosmetics giant L ‘Oreal’s chief executive, Ye Hongmo, said at an earnings call in July that sales in some Asian countries had yet to return to pre-pandemic levels.