Virus lockdowns drag global manufacturing into a slump

Bloomberg

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 and Europe showed measures of manufacturing activity dropped sharply, with some at their lowest since the financial crisis more than a decade ago. In Italy, an index of output dropped to lowest since the series began in June 1997.
The factory sentiment 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. Companies from car manufacturer Renault SA to parts maker Johnson Matthey Plc have halted production at multiple sites.
There was a hint of a bottom in China as the Caixin Media and IHS Markit PMI rose, as did measures of output and new orders. Economists caution the better reading was inevitable as workers returned after an unprecedented shutdown and doesn’t yet signal a firm rebound.
In euro area, manufacturing shrank in Germany, France and Italy, region’s three largest economies. Average output and new orders in bloc plummeted the most in almost 11 years. The UK also reported a sharp drop in facory output and employment.
Companies reported significant problems with securing supplies even as they reduced purchasing activity and cut staff. The reports may not even capture full extent of downturn because of how the hit to delivery times is distorting the results.
“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 stabilize financial markets. Governments have unleashed eye-popping amounts of stimulus to aid consumers and businesses.
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.
While Europe appears to be the epicenter of the pandemic, the situation is also deteriorating in the US. A closely watched manufacturing survey due later on Wednesday is forecast to show the deepest contraction since 2009.
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 SA 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.”