While specialisation is beneficial in terms of maximising productivity, resilience and flexibility is required in adapting to shocks in specific industries and export markets.
It could be argued – with the distinct benefit of hindsight, of course – that repeated supply shocks have combined to produce a persistent supply shock that has effectively reduced output below its pre-pandemic potential for much longer than first anticipated.6 When combined with the strong demand rebound – in part due to the pandemic policies that largely preserved household income – the conditions were set for the sort of persistent and broad-based inflation we are now experiencing.