LONDON (ICIS)--The eurozone’s manufacturing index PMI fell in March to April 2009 levels but the “severity of the slump” was masked by disruptions in the supply chains, which normally would reflect booming industrial activity, analysts at IHS Markit said on Wednesday.
The reasons for supply chain issues were related to quarantines and industrial shutdowns imposed by the largest economies within the 19-country currency union, rather than booming industrial activity.
“Supply delays are normally seen as a sign of rising demand, but at the moment near-record delays are an indication of global supply chains being decimated by factory closures around the world,” said IHS Markit’s chief economist Chris Williamson.
At 44.5 points in March, the Eurozone Manufacturing purchasing managers' index (PMI) fell from February’s 49.2 points; a reading below 50.0 points shows economic contraction.
The composite PMI for both services and industry, published on 24 March, showed an even larger decrease to a record low, at 31.4 points, down from February's 51.6 points.
Williamson warned the eurozone may still be some way off the peak of industrial activity decline, with only the food and pharmaceuticals sectors expected to perform well.
“Besides the hit to output from many factories simply closing their doors, the coming weeks will likely see both business and consumer spending on goods decline markedly as measures to contain the coronavirus result in dramatically reduced orders at those factories still operating,” he said.
“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 … Large swathes of manufacturing could see downturns of the likes not seen before.”
Shutdowns across Europe caused in March “significant obstacles” for manufacturers to secure supplies, both from within and outside of European markets.
Output and new orders fell sharply, and employments levels fell the greatest pace since the 2009 recession; prospects for manufacturing output are bleak.
“We need to look at the survey’s output and new orders gauges to get a better understanding of the scale of the likely hit to the economy that will come from the manufacturing sector’s collapse, and these indices hint at production falling at the sharpest rate since 2009, dropping an annualised rate approaching double digits.”
Italy, the third largest eurozone economy, is currently through its second week of complete industrial shutdown apart from those sectors considered essential, and its PMI fell to a 10-year low to 40.3 points.
Germany, France, and Spain – first, second, and fourth eurozone economies – also posted negative figures for their industrial PMIs at 45.4, 43.2, and 45.7 points, respectively.
Spain also imposed on Monday (30 March) industrial shutdown like those in Italy, as authorities battle to contain the spread of coronavirus; both countries are the hardest hit by the pandemic in Europe.
In the UK, the manufacturing PMI also fell to its lower level since 2012, at 47.8 points, while business optimism slumped the series-record low amid intensified supply chain disruption.
Employment levels across the eurozone fell in March, manufacturers surveyed by Markit said, with Germany’s industry registering large falls.
Corporates in that country have been implementing short-term work, or Kurzarbeit in German, a policy under which workers agree or are forced to accept a reduction in working time and pay.
The chemicals industry has mostly escaped the trend, which has largely affected other chemicals-intensive industries like automobile.
However, the bellwether of European chemicals, Germany’s major BASF, said to ICIS on 27 March it had applied short-term work at its sites in Munster and Wurzburg mostly supplying the automotive industry, but its flagship Ludwigshafen site had for now been spared.
“Manufacturers also cut their employment levels over the month, with the net reduction in staffing numbers the sharpest recorded by the survey in over a decade. Job losses were especially acute in Austria, Germany and Ireland,” said Markit on Wednesday.
The EU’s statistical agency Eurostat released on Wednesday figures for unemployment in February, showing a decrease to 7.2% from 7.3% in January.
CALM BEFORE THE STORM
But analysts at Oxford Economics said the Eurostat data was only “the calm before the storm” as the coronavirus pandemic had not yet hit Europe in February.
“We expect unemployment across the bloc to surge in the coming months as lockdowns lead to widespread layoffs … Manufacturing conditions are likely to get worse. Increasingly strict lockdown measures, both in the eurozone and globally, will shut even more factories,” said the analysts.
“Rising layoffs in the industrial sector reported in March mean factories won’t be able to immediately restore production once containment measures are lifted. Overall, today’s data support our view of a very severe recession in H1 [first half 2020].”
Front page picture: An empty car park at
Paris' Orly airport, which announced on
Wednesday its closure until further
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