Prepare for the 'mother of all supply chain stumbles' if Omicron sweeps across Asia and raises the risk of factory shutdowns, analyst warns

• If Omicron spreads in Asia it could lead to factory shutdowns.
• This could wreak havoc on already fragile global supply chains, one economist said.

Just as the global supply chain breakdown had begun to heal, the arrival of Omicron is casting a dark shadow over its recovery.

In a note to clients on Monday, Frederic Neumann, co-head of Asian Economics Research at HSBC, warned that the highly transmissible Omicron variant could lead to the "mother of all supply chain stumbles" if it spreads across Asia and raises the risk of factory shutdowns. The new variant is already wreaking havoc in the US and Europe.

He wrote: "Asian production networks, hitherto impressively resilient, may be thrown into a funk as Omicron grips the region...and all at a time when, faintly, faintly, supply chain issues appear to be easing in the West. The risk, then, is that over the coming months we'll experience the 'mother of all supply chain' stumbles: an Omicron-driven stall in factory Asia."

The recent spate of COVID-19 flare-ups in Asia is already putting a strain on supply chains. Insider's Huileng Tan recently reported that major chipmakers such as Samsung and Micron had warned that a strict lockdown in the city of Xi'an in central China could affect operations at their manufacturing facilities there. Any delays in chip supply would intensify a global chip shortage and impact electronics manufacturing, Tan wrote.

The current supply chain-driven delays that the West is experiencing are largely related to transportation and labor issues rather than factory shutdowns and shortages that were common early on in the pandemic, experts say.

If these shutdowns were to return, it could wreak havoc on the already fragile supply chain network. And the rapid rate of the transmission could mean Omicron is more disruptive than other variants, Neumann said.

"With slower moving variants, many governments were able to shield essential manufacturing operations, limiting the impact on the output of essential goods and components.

"But that will be harder to do with Omicron, which races through populations at unrivaled speed - and even if it presents a somewhat less acute health risk compared to earlier variants, it is still potent enough to deprive Asia's factory of a critical number of workers during their convalescence," he said.

Still, there is some light at the end of the tunnel, he said. Omicron may burn itself out faster than other variants so while the immediate impact will likely be severe, it may at least be short-lived.