Good economic performances by industrial sectors in the U.S., South Korea and China are being 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 already are holding back the manufacturing sector, while inflation is a black cloud on the horizon.
These are the central conclusions of Interact Analysis’ latest quarterly update of its Manufacturing Industry Output Tracker (MIO), released in early June. Other highlights of the report:
- Slow recovery out of pandemic is predicted up to end of 2023 or into 2024.
- Manufacturing output growth calculation for 2020 revised upward from -3.9% to -3.6%
- Semiconductors: crash in the market expected late 2023 or early 2024.
- Quantitative easing will cause inflation in some world regions
Pandemic response uneven
The COVID-19 vaccine rollout has been uneven, meaning 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 U.K. 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 major hits to its economies in 2020, with growth slumping by around 10%, while the slow vaccination rate will keep growth down to 6% in 2021.
The U.S. is currently running at around 85.4 doses per 100 people, and its 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 that recovery is going to be slow, likewise in Brazil, both having the daunting task of turning around from double digit manufacturing declines in 2020 (India: -12.6%; Brazil: -15.8%). They're 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, despite a limited vaccine rollout.
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, research shows that the current period of unusually strong semiconductor growth as a result of the shortage will be followed by a crash in the sector 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, comments, “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 U.S., respectively, means serious inflation is almost inevitable in some key regions. The effects of COVID-19 are going to stretch some way into the future."
