Business of Engineering

Slow manufacturing recovery expected post COVID-19

Interact Analysis reports a slow recovery for many countries' manufacturing industries due to an uneven COVID-19 vaccine rollout and possible inflation.

By Interact Analysis June 7, 2021
Courtesy: CFE Media and Technology

Interact Analysis has published its quarterly update of its Manufacturing Industry Output Tracker (MIO). The report predicts a slower-than-previously-expected global recovery from the pandemic. Good performances by the US, South Korea and China are offset by regions such as Europe and Japan, which have struggled with the pandemic but are expected to make a swift recovery, and India and Brazil, which continue to fare badly and are expected to see a slow recovery. Problems in the semiconductor sector are already holding back the manufacturing sector, while inflation is a black cloud on the horizon.

The COVID-19 vaccine roll-out has been uneven, which means some economies will open up more slowly than others. The Europe, the Middle East and Africa (EMEA) region, in particular, has fared relatively badly. In February 2021, for example, while the UK registered 89.8 vaccination doses per 100 people, Germany registered only 54.2. France and Italy currently measure 48.6 and 51.9 per 100 respectively. The region saw a major hit to the economy in 2020 with growth slumping by around -10%, and the slow vaccination rate will keep growth down to 6% in 2021.

The US is currently running at around 85.4 doses per 100 people and the economy should be fully open by this summer, turning a relatively modest negative manufacturing growth of -3.7% in 2020 into positive expansion running at 6.4% in 2021. The terrible news coming out of India means recovery is going to be slow, likewise Brazil, both having the daunting task of turning around from double digit manufacturing declines in 2020 (India: -12.6%; Brazil: -15.8%). They are both projected to achieve a relatively modest year on year growth of around 6% in 2021. China is the only country that saw positive manufacturing growth in 2020 (1.9%) and is now back to normal levels of production, in spite of a limited vaccine roll-out.

A combination of factors has led to a serious shortage of microchips, with major repercussions for the electronics and automotive sectors, and a consequent knock-on effect for industrial automation companies. This is hampering recovery in many regions. In the longer-term, the research shows the current period of unusually strong semiconductor growth as a result of the shortage will be followed by a crash in the market sometime around the end of 2023 or the beginning of 2024. This is being driven by two factors: semiconductor companies are investing in new capacity to deal with current elevated demand, and semiconductor customers are currently stockpiling and will soon have more than they need.

Adrian Lloyd, CEO at Interact Analysis, said: “These have been incredibly difficult times for the global manufacturing sector, and we’re by no means out of the woods yet. The chip shortage will continue for some time to come. Furthermore, the vast scale of quantitative easing and financial support that was applied by governments during the pandemic, amounting, for example, to a massive 54.5% of GDP for Japan, and 39.5% and 26.5% for Germany and the US respectively, means that serious inflation is almost inevitable in some key regions. The effects of covid are going to stretch some way into the future.”

– Edited from an Interact Analysis press release by CFE Media. Interact Analysis is a CFE Media content partner.

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