Global manufacturing faces a widespread recession

Global manufacturing faces a widespread recession

Earlier this year, General Electric of the United States, Tata Steel of the United Kingdom, and Bombardier of Canada announced layoffs. Last December, industrial production in Italy, the United Kingdom, Germany, and France fell by 0.7%, 11.%, 1.2%, and 1.6%, respectively. China’s manufacturing purchasing managers’ index is below 50, and 50 is a threshold for contraction. The Bloomberg Commodity Index has fallen by 28% in the past 12 months. The Baltic Dry Index has fallen by 98% from its peak value. Before the international financial crisis in 2008, global trade grew faster than the GDP growth rate, and now it has lagged behind GDP growth. The sluggish trade has a serious impact on the manufacturing industry. About 25% of the manufacturing industry in the United States is related to trade, and the related ratio in the service industry is 6%. The world-renowned industrial brand Caterpillar released its annual report on January 28. The company's revenue fell by 15% in 2015 compared with 2014, which was a 29% drop from the peak in 2012. Caterpillar's plight is a microcosm of global manufacturing. Although the share of manufacturing in most developed countries is smaller than that of the service industry, the recession in manufacturing has caused many economists to have deep concerns about the broader economic panorama.

The drop in commodity prices also means that oil and metal producers will not invest in new plants and new equipment, which will inevitably affect manufacturers of production equipment. For example, Exxon Mobil Corporation has announced a 25% cut in capitalized expenditure in 2016. The capacity utilization rate in the United States has reached a lower level, and the company’s inventory sales ratio is higher than any period since the financial crisis. The appreciation of the US dollar is also a problem for U.S. companies. On a trade-weighted basis, since the middle of 2014, the U.S. dollar exchange rate has risen by 22%. This is a big blow to companies that produce low-margin products. However, currency does not explain the weakness of European manufacturing because in the past five years, the trade-weighted euro has fallen by 11%.

For manufacturing, the best hope is that this weakness is temporary. Falling commodity prices have a short-term impact on the energy and raw material industries, but in the medium term, lower prices are good for consumers in the developed world, and they will increase purchasing power for manufacturing products. Automakers have shown the possibility of upstream. Industrial data related to personal consumption in China is also dynamic. However, pessimism about manufacturing is still the mainstream of the market. (Source: Shanghai Securities News)

Global manufacturing faces a widespread recession