Health crisis and climate risks shape global value chains

OeNB Governor Holzmann opens Conference on European Economic Integration (CEEI) 2021 of Austrian central bank

Over the past three decades, the world economy was transformed by global value chains (GVCs), which proved an engine of economic growth and development. Deep integration into GVCs also benefited Central, Eastern and Southeastern European (CESEE) economies, strongly supporting their successful transition and catching-up. “However, recent events have also laid bare the vulnerability of GVCs,” Robert Holzmann, Governor of the Oesterreichische Nationalbank (OeNB), said when opening the two-day Conference on European Economic Integration (CEEI) on November 22, 2021.

With the COVID-19 pandemic having brought about significant supply chain disruptions, global industrial production and trade flows were severely hampered, highlighting Europe’s dependency on materials and intermediate goods imported from countries like China. Putting the impact into figures, Governor Holzmann noted that supply bottlenecks dampened economic activity in Austria by at least 0.3 percentage points in the second and third quarters of 2021, with individual sectors being particularly hard hit. This applies, for instance, to the car industry, a sector the CESEE region is heavily reliant on.

In addition to pandemic-related challenges, we are witnessing profound structural shifts in our economies as the world is increasingly determined to tackle climate change. Governor Holzmann pointed out that this, as well as the impact of climate change itself, may push commodity prices even higher in addition to the cyclical upturn in inflation. 

Looking ahead, Governor Holzmann drew the audience’s attention to the most pressing policy priorities and unresolved questions. These include striking the right balance between relocating production to ensure strategic autonomy and diversifying trade flows to create a more robust world trading system. At the same time, it remains to be seen whether firms looking to reshore or nearshore their operations will indeed bring manufacturing back or closer to home, and to what extent the CESEE region might benefit from this trend. Furthermore, given the region’s focus on rather low value-added activities in global production networks, consideration will also be given to how CESEE economies can avoid being caught in a functional specialization trap.

To discuss these and other issues, we are proud to have high-ranking representatives of central banks, speakers from international organizations, industry and academia as well as roughly 350 participants join us in hybrid format at the CEEI 2021 on Monday, November 22, and Tuesday, November 23, 2021.