COVID-19 and the transmission of shocks through domestic supply chains

Fergal McCann () and Samantha Myers
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Samantha Myers: Central Bank of Ireland

No 3/FS/20, Financial Stability Notes from Central Bank of Ireland

Abstract: Inter-sectoral linkages play an important role in transmitting the economic shock resulting from COVID-19. In particular, upstream (supplier) sectors that are not directly exposed to COVID-19 containment policies can be affected if their downstream (customer) firms suffer acute revenue losses. In this Note, we use input-output tables to identify such linkages. We highlight that EUR 35bn-40bn of business-to-business purchases in 2019 were by companies in sectors currently experiencing sharp revenue losses as a result of COVID-19 containment policies; firms making these sales are at risk of experiencing a knock-on liquidity shock through the supply chain. We also note sectors whose customers are less affected, which may act to mitigate the effects of the shock. Finally, we note that transmission from upstream suppliers to downstream firms is likely to be smaller than in the opposite direction, due to the nature of the current shock.

Date: 2020-04
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