Who will suffer the most from the global manufacturing slowdown?
In September, the Markit indices of purchasing managers in the eurozone fell sharply in the manufacturing sector. They have reached lows not seen since April 2013 in Spain, since October 2012 in both the euro zone and Austria and since June 2009 in Germany.
In Italy and Ireland, they remain well below the 50 mark, at 47.8 and 48.7 respectively. As for France, after a surge in June and August, it is now at 50.1. Only Greece continues to resist, although it fell by 1.3 points in September alone. It’s clear that the industrial recession is worsening in the eurozone and is becoming the most severe since the 2008-2009 crisis.
And the same can be seen outside this area. In September, purchasing managers' indices showed a worsening of the recession in the United Kingdom, with levels of 48.3 in industry. The situation is getting complicated on a global scale : in September, the PMI "world" index remained below 50 for the fifth consecutive month in industry and fell to 51.6 in services. In total, the "world composite" index fell to 51.2, the lowest since June 2016.
The US is best placed
But who will suffer the most from this global manufacturing slowdown? Wells Fargo tried to answer that question by looking at the weight of manufacturing in the economy of each country. It believes that the US is well placed to withstand such a slowdown because manufacturing is a relatively small piece of the total economy. According to OECD data on industry ex-construction, industrial employment in the United States is about 10.6% of total employment. As a share of total U.S. output, industrial production is about 13%. Looking at this data, New Zealand, Australia and the United Kingdom are also well placed.
Source: Organization for Economic Co-operation and Development and Wells Fargo Securities
However, in the Eurozone, the situation is different : for example, over one in five German workers is employed in the industrial sector. Japan also has a relatively high share of workers employed in industry at roughly 16%. “Thus, it appears that if a sharp contraction in the manufacturing sector were to cause a recession somewhere, the Eurozone may be the first domino to fall, at least among these economies.”, the report states. “Given that a larger share of Europeans are employed in the industrial sector, such a slowdown could pose a bigger threat to consumer spending than it would somewhere else, like the United States (…)if the current global manufacturing slowdown continues to worsen, it could push the European economy to the brink.”