The global recovery is long and bumpy

2020-07-17 16:24:25

Factories in the US and elsewhere continued to cut production and jobs last month, although the pace of deterioration slowed as governments relaxed coronavirus-related restrictions on their economies.

The survey of purchasing managers across the US manufacturing sector offered some hope that global manufacturing activity was starting to bottom out after a record fall in April. But sentiment remains weak, suggesting any recovery in the coming months is likely to be temporary.

The Institute for Supply Management's manufacturing index rose to 43.1 in May from an 11-year low of 41.5 in April. But production, new orders and employment are all well below the 50 mark that separates expansion from contraction.

Only in China did factories report an increase in activity.

The survey suggests the worst may be over for manufacturing and activity could start to pick up in the coming months. But the road back to the levels of output and employment at the end of last year is bound to be long and bumpy.

Chris Williamson, chief business economist at IHS Markit, which produces most of the questionnaires, said: "There is still a lot of uncertainty over whether there will be real growth momentum as demand looks set to remain subdued for some time due to social isolation, high unemployment and falling corporate profits."

In many countries, factory managers report that restrictions on the movement of people continue to make it difficult for them to maintain normal levels of output. But they also said weak demand was weighing on them and new orders continued to fall.

In a sign that conditions are not expected to improve quickly, many factories said they would lay off more workers. In India and South Korea, job losses are at record highs.

One problem highlighted by the surveys is that even where quarantine restrictions have been lifted, or were not too strict in the first place, progress towards normalisation has been hampered by weak export demand.

South Korea was caught early in the epidemic, though it has opted not to impose quarantine, instead focusing on extensive testing and tracing of people infected and in contact with them.

But South Korea's exports fell 23.7% in May from a year earlier to $348.6 billion, according to data released Monday.

"The crucial factor is that some of South Korea's major export markets have been much slower to exit from closures than to implement segregation," said Miguel Chanco, an economist at Pantheon Macroeconomics.

However, other manufacturing powers are also experiencing deep recessions. Germany's rose only slightly, from 34.5 to 36.6, while Japan's fell to 38.4 from 41.9.

Across the eurozone, Italy came closest to a manufacturing recovery, with its PMI rising from 31.1 to 45.4.

Global industrial production in the first three months of this year was 4.2 per cent lower than in the fourth quarter of 2019, according to the CPB Netherlands Bureau for Economic Policy Analysis. Surveys of purchasing managers suggest the decline is likely to be even steeper in the three months to June.

Source: Tencent Securities