By Paul Hannon
Factories across Asia and Europe cut output and jobs at the
fastest pace since the global financial crisis, a sign the global
economy has entered a deep freeze as governments lockdown their
populations in an effort to contain the novel coronavirus and
minimize mortality.
A series of business surveys released Wednesday painted an
almost uniform picture of sharply declining production, falling new
orders and contracting payrolls. The main exception was China,
which saw a slight rebound in activity as its economy began to thaw
out, having been the first to be frozen.
Factories across Asia and Europe reported a series of
challenges. Some had shut entirely as workers were forced to stay
at home to meet social distancing requirements. Some had been
forced to cut output because the raw materials and parts they
needed had become scarce. And others had cut back because demand
had fallen as the global economy entered a downturn.
Factory output and employment is likely to fall further before
it starts to rebound, although that recovery may be limited by job
cuts and shutdowns that can take time to reverse. If they don't
receive help from governments, and forbearance from banks, some
manufacturing companies may close for good.
"Manufacturing conditions are likely to get worse," said Rosie
Colthorpe, an economist at Oxford Economics. "Increasingly strict
lockdown measures, both in the eurozone and globally, will shut
even more factories. Rising layoffs in the industrial sector
reported in March mean factories won't be able to immediately
restore production once containment measures are lifted."
In addition to China, there were other countries where some
aspects of manufacturing activity defied the general trend. Turkish
factories hired additional workers, and both the Netherlands and
Taiwan just about managed to avoid a decline in overall activity in
the sector.
But in most other countries the freeze has taken a huge toll on
factories, overshadowed only by the toll it has taken on service
providers.
In Europe, Italy has been hardest hit by the virus, and its
manufacturing sector was hardest hit by the measures taken to
contain it. Data firm IHS Markit's Purchasing Managers Index, a
measure of activity in the sector, fell to 40.3 in March from 48.7
in February. A reading below 50.0 indicates a decline in activity
compared with the previous month, and the measure for March points
to the largest drop in almost 11 years.
"With the Italian economy effectively shut down, it is unlikely
that any recovery from the significant Covid-19 disruptions will be
swift," said Lewis Cooper, an economist at IHS Markit.
Factories in Greece, Poland and the Czech Republic were also hit
hard by lockdowns and other setbacks. Germany, the continent's
manufacturing powerhouse, saw the largest drop in output since the
immediate aftermath of the financial crisis, although the impact
was mixed across industries. IHS Markit said producers of tools and
equipment, and automobiles saw the largest declines, while makers
of cleaning products and protective clothing reported a pickup in
output and hiring.
Food producers also reported a pickup as German shoppers stocked
up on essentials, a practice known here as "Hamsterkäufe," or
hamster-shopping. Figures released Wednesday showed German retail
sales increased sharply in February in anticipation of lockdowns to
curtail the coronavirus pandemic
In Asia, Vietnam and the Philippines saw the largest declines in
activity, the latter seeing an even larger drop than Italy. But big
declines were also reported in Japan, South Korea, Indonesia and
Thailand. In each of those countries, factories cut jobs.
In Europe, governments have rolled out a series of measures
intended to limit the rise in unemployment as large parts of the
economy hibernate. They include a series of programs that pay a big
chunk of the wages of workers that companies have been forced to
place on reduced hours.
The German Labor Agency Tuesday said around 470,000 businesses
asked staff to work shorter hours in March, a record high. Detlef
Scheele, the agency's chairman, said the number of workers on
state-subsidized short-time work schemes would likely rise
considerably higher than its peak during the 2008-09 financial
crisis, when 1.4 million workers took advantage of the program.
Continental AG, the German automotive supplier, Wednesday said
that in light of the temporary shutdown of nearly half its 249
factories, including most of its operations in Europe and the U.S.,
30,000 German employees, or half the workforce in its home country,
had been put on short-time work as of April 1.
"We have agreed with employee representatives to use all
available options in the coming weeks to respond to this crisis in
a flexible manner," Ariane Reinhart, Continental's executive board
member for human resources. "Our mutual goal in the current phase
is to protect our employees and to protect jobs. Instruments such
as short-time work in Germany help us here."
In Switzerland, takeup appears likely to be high. Its survey of
purchasing managers found that more than a quarter of manufacturing
companies have already applied for government help, affecting 13%
of their workers on average.
Even with those schemes, the number of people without work is
expected to soar in Europe during the coming months. But that rise
will take place from a low level: according to figures released by
the European Union's statistics agency Wednesday, 88,000 people
found work across the eurozone in February, lowering the
unemployment rate to 7.3% from 7.4%, its lowest since March
2008.
--William Boston and Ruth Bender in Berlin contributed to this
article
Write to Paul Hannon at paul.hannon@wsj.com
(END) Dow Jones Newswires
April 01, 2020 07:17 ET (11:17 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.