06.05.2020 // Politics

April sees unprecedented fall in manufacturing output amid efforts to contain virus outbreak

Covid-19 lockdown leads to record decreases in output and new orders

The Covid 19 pandemic is stressing the global economy and is also putting heavy pressure on the manufacturing sector in Germany. Photo: Gerd Altmann/pixabay The Covid 19 pandemic is stressing the global economy and is also putting heavy pressure on the manufacturing sector in Germany. Photo: Gerd Altmann/pixabay

The Covid-19 pandemic and resulting global virus containment measures led to a record contraction in German manufacturing output in April, latest PMI data from IHS Markit and BME showed. A collapse in demand and bleak outlook for the coming year meanwhile resulted in the deepest cuts to factory job numbers for almost 11 years, despite widespread uptake of the short-time work scheme.

The headline IHS Markit/BME Germany Manufacturing PMI dropped sharply from 45.4 in March to 34.5. Though the lowest since March 2009, this compared with a reading of 19.7 for the survey's Output Index. The decline in the headline index was softened by a record lengthening of supplier delivery times and rise in stocks of purchases – both linked to supplychain disruption caused by the coronavirus outbreak, and both contrary to trends usually associated with a downturn.

The decline in output was once again led by the investment goods category, followed by intermediate goods. After having remained little-changed during March, production across the consumer goods category also fell sharply, dropping to the greatest extent on record.

April saw a dramatic fall in new work received by Germany manufacturers, with the rate of decline even faster than at the depths of the financial crisis in late-2008. Customer closures, supply disruption and uncertainty leading to order cancellations or postponements all contributed the drop in new business volumes. Exports sales fell even faster than overall new orders, reflecting particularly weak demand from Italy, France, Spain and the US.

The pace of staff cuts across the manufacturing sector gathered pace in April, reaching the quickest seen since May 2009. Alongside reports of redundancies, reduced contractor numbers and natural wastage, there were also frequent mentions of the use of short-time working to avoid job cuts.

Like employment, manufacturers' purchasing activity fell at the fastest rate since 2009. That said, the decline was notably slower than that of output amid efforts by numerous firms to build up safety stocks due to growing supply chain difficulties. The incidence of input delivery delays was the greatest seen in over two decades of data collection. The combination of precautionary inventory building, falling sales and transport disruption led to a record accumulation of finished goods stocks in April.

Lower demand for raw materials and semifinished goods was reflected in a twelfth successive monthly fall in average purchase prices in April. The rate of decline eased, however, amid reports of higher prices paid for items in short supply (primarily cleaning products and related chemicals). Strong competition for new work saw factory gate prices continue to fall at one of the fastest rates seen over the past ten-and-a-half years.

Manufacturers' expectations for output over the coming year remained close to March's series record low (since July 2012). Most firms were pessimistic (62%), often citing concerns about long-lasting effects from the virus outbreak.

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