Global manufacturing suffers one of the grimmest months on record
Manufacturing shrinks in the UK, Germany, France and Italy as average output and new orders plummet the most in more than a decade
New York — Factories around the world suffered one of their grimmest months on record in March, as the coronavirus led to mass shutdowns and wreaked havoc on supply chains.
Figures from Asia to Europe and the US showed manufacturing taking a hit, with some measures at their lowest since the financial crisis more than a decade ago. In Italy, an index of output in IHS Markit’s monthly report dropped to the weakest since the series began in June 1997.
US factories saw orders and employment tumble the most in 11 years in March, according to a separate report from the Institute for Supply Management. The headline number performed better than expected, but only because increased delivery times are distorting the results.
The global reports reflect a worsening in the virus outbreak. A surge in cases in Italy, Spain, and the US brought those economies to a halt in March, providing an additional punch to Asian nations that have been battling the virus for months.
There was a hint of a bottom in China as the Caixin Media and IHS Markit PMI rose. Economists caution the better reading was inevitable as workers returned after an unprecedented shutdown and does not yet signal a firm rebound.
In the eurozone, manufacturing shrank in Germany, France and Italy, the region’s three largest economies. Average output and new orders in the bloc plummeted the most in almost 11 years. The UK also reported a sharp drop in factory output and employment.
Companies also reported significant problems with securing supplies even as they reduced purchasing activity and cut staff.
“The concern is that we are still some way off peak decline for manufacturing,” said Chris Williamson, chief business economist at IHS Makit. “Company closures, lockdowns and rising unemployment are likely to have an unprecedented impact on expenditure around the world, crushing demand for a wide array of products.”
In response to the threat to businesses, jobs and people’s livelihoods, central banks have slashed interest rates and ramped up bond-buying and other liquidity measures to try to stabilise financial markets. Governments have unleashed eye-popping amounts of stimulus to aid consumers and businesses.
“Will the sudden stop in the global economy trigger a financial crisis? All-out support from central banks and hopes for rapid control of the outbreak mean so far the answer is a tentative ‘no’. That could change,” say Bloomberg Intelligency analysts Scott Johnson and Tom Orlik.
In central Europe, where manufacturing is the main growth engine, factories were plunged into the deepest declines since at least the last global recession. In Sweden, the confidence fell the most on record as major companies started closing production.
There has been little sign of an easing in the pandemic in Europe, with Spain suffering its deadliest day on Tuesday. Italy and the Netherlands are discussing prolonging lockdown measures, and German officials warned that things could still get worse.
In the sign of the hit that Europe’s largest economy has sustained, German companies filed almost half a million applications for financial aid under a government support program in March.
Across Asia almost all of regional purchasing managers indexes except for China fell further below 50, the dividing line between contraction and expansion. Japan and South Korea posted their worst readings since the global financial crisis more than a decade ago.
“As the region increasingly has less mobility due to measures to contain the virus, the April PMI will show weakness,” said Trinh Nguyen, a senior economist at Natixis in Hong Kong. “Even more worrying is its biggest customers — the US and the EU — are not consuming and thus will hurt new orders in the second quarter of 2020.”