Coronavirus crisis causes industrial production to slump dramatically in March
The outbreak of the coronavirus and the development into a worldwide pandemic caused the German industrial sector to shrink significantly in March. The latest data from IHS Markit and BME on the Purchasing Managers' Index signal dramatic declines in production and incoming orders, which can be attributed to a large extent to weak global demand and significant disruption to supply chains.The seasonally adjusted IHS Markit/BME Purchasing Managers Index (EMI) fell to 45.4 points in March from 48.0 in February (13-month high). The decline in the main index was cushioned by a marked increase in delivery times. While an extension of delivery times usually signals higher capacity utilisation, the increase in March was clearly a consequence of the massive disruption of supply chains in the wake of the coronavirus pandemic, the British financial services provider IHS Markit announced in London."The corona crisis has hit manufacturing industry in Germany hard. There is no end to this downward spiral in sight," emphasized Dr. Silvius Grobosch, Managing Director of the German Association of Materials Management, Purchasing and Logistics. (BME), on Monday in Eschborn. For the time being, it can only be hoped that the measures introduced to contain the pandemic will take effect as soon as possible. "A recession in Germany is unavoidable. In our baseline scenario, we expect a decline of three percent for the year 2020 as a whole. The decisive factor is the length of the initial restrictions and production interruptions," commented Dr. Gertrud R. Traud, Chief Economist at Helaba Landesbank Hessen-Thüringen, on Monday in response to a BME inquiry about the current EMI data. If China is a blueprint, a gradual normalisation of economic activities can be expected in May/June. If, on the other hand, it takes much longer, the recession will also become deeper and more "cruel". "In our negative scenario with a 30 percent probability of occurrence, we then expect a GDP decline of seven percent," added the Helaba Bank Director."The effects of the coronavirus are hitting the breadth of the German economy. Many supply chains are coming to a standstill," Kevin Heidenreich, head of the department for fundamental issues of foreign trade and development policy at the DIHK, told the BME on Monday. Necessary protective measures would even bring business activity in some sectors to a complete standstill. With the drastic decline in orders and production across all sectors, "we are probably facing the greatest economic challenge since the end of the Second World War. According to a current survey of companies conducted by the DIHK (German Chamber of Industry and Commerce), 80 percent of companies expect a drop in sales, and one in four companies even fear a decline of more than 50 percent. In this dramatic business situation, the demand for state support services is high," added Heidenreich. Regarding the latest development of the EMI sub-index purchase prices, Dr. Heinz-Jürgen Büchner, Managing Director Industrials, Automotive & Services of IKB Deutsche Industriebank AG, told the BME on Monday: "In the course of March, there was a slump in raw material prices as a result of the corona crisis. Whereas geopolitical risks had previously been the focus of attention, this has now shifted to the length of time it takes to close production facilities in Europe and possibly the USA. Many companies are currently examining shutdown scenarios for their production over a period of two to three months. This reduces the demand for raw materials accordingly. In the case of listed commodities, however, investment demand has already picked up again in some cases. However, supply bottlenecks are also becoming apparent, as Italian steel and aluminium suppliers, for example, are not fully able to deliver. Nevertheless, we expect steel prices to fall in the second quarter, especially as import pressure from Asia is also expected from around June. Overview of the development of the EMI sub-indices:** Industrial production:** The global spread of the coronavirus disease with its effects on demand, supply chains and business activity led in March to the most massive decline in production in Germany's industry since April 2009. Manufacturers of capital goods - including vehicle construction and mechanical engineering - recorded the largest drop in production, followed by producers of intermediate goods. However, only a marginal decline was recorded in the consumer goods sector.