Inside Logistics

Manufacturing to return to 2019 levels in five years

Pandemic manufacturing contraction forecast at 7.6 percent


May 20, 2020
by

London, UK – Most countries will have surpassed 2019 levels of manufacturing output by 2024, with some achieving the milestone by 2022.

Interact Analysis’s latest update to its Manufacturing Industry Output Tracker (MIO) forecasts a steady but varied recovery for global manufacturing, notwithstanding the fact that some sectors have been hit harder than others during the COVID-19 crisis.

In January 2020, Interact Analysis predicted the start of a gradual short-term rise in global manufacturing output, after relatively lean years in 2018 and 2019. This was based on various historical measurements and forward-looking indicators.

The Covid-19 pandemic has completely changed that outlook, as the global economy has been disrupted in a way never seen before. There have seen significant downturns in the past, notably in 2009, but this MIO update shows that, though the current economic situation looks disastrous, the crisis happened when basic market fundamentals for many economies were sound, and so recovery, though slow, will be sustained.

Interact Analysis’s research predicts a global pandemic-induced contraction of 7.6 percent in 2020. This is not as severe as the 8.6 percent contraction experienced in 2009, but it is close.

To inform post-COVID-19 forecasts, the MIO has considered two key factors: which industries were most impacted by the virus, and how effective each country has been in controlling the virus and minimizing disruption.

Transportation industries have been the most severely affected, and they are predicted to remain below 2019 levels of productivity until beyond 2024. The disruption to airlines will have a long-term negative effect on the industry, as it did after 9/11, and the automotive industry will be hit by widespread unemployment, diminishing disposable income and the ability of consumers to purchase new vehicles.

The food and beverage sector, on the other hand, is unlikely to slow down over the next five years. While not a sector that achieves high growth rates, it has stability due to constant demand, and tends to ride out downturns.

The timescale for manufacturing in individual countries to recover will largely depend on how effectively those countries handled the pandemic, and how badly they were affected. Interact Analysis expects the most affected regions, such as the U.S., the U.K. and Italy to see a slower recovery in 2021, which will intensify in 2022.

In countries such as Korea and China, where the virus has seemingly been effectively controlled, a significant recovery as soon as 2021 is expected.

Germany, however, is likely to be an exception to the rule. Widely praised for its effectiveness in controlling the virus, its manufacturing base has a heavy reliance on exports, which will be severely hit as worldwide economies contract, and to make matters worse, Germany’s automotive sector makes up one fifth of the country’s industrial output. Of all the major world economies, Germany’s is the only one forecast by Interact Analysis to have a 2024 manufacturing output lower than in 2019.