Coronavirus: China manufacturing economy bounces back strongly after lockdown
China’s official manufacturing PMI in March was 52, back from an all time low in February and higher than forecasts
– South China Morning Post 31/03/2020
So, we now see the first moves in Europe of relaxing restrictions in a controlled way. It is interesting that Italy was one of the last to shut down its manufacturing and may well be one of the first to open it up. Equally in the USA, Trump is itching to kickstart the US Economy led by manufacturing.
Here in the UK we wait for the peak of Coronavirus to pass and head down the curve the other side, but it may well be that the UK Government turns to manufacturing to start the controlled relaxation of restrictions.
It is difficult to put a figure on the percentage of UK manufacturing that is shutdown. Some commentators are saying it is over 50%. Certainly, in the car industry it is estimated at 45%. But even here there are signs of plants re-opening.
Traditionally one of the issues in manufacturing is, it is slow to recover. Looking at the 2008 financial crash, The Guardian reflects, “Investment has been poor, productivity growth virtually non-existent, and wages adjusted for inflation are still below where they were when the financial crisis began.”
By 2019 Manufacturing was increasing in some key markets, such as Renewable Energy, Electrical Engineering and others, but with Brexit the jitters were showing. So, as we look forward, what does the prognosis look like for Manufacturing? Currently manufacturers seem to have centred around 3 simple phases:
Phase 1 – Survival; Phase 2 – Recovery; Phase 3 – Business as Usual in the new post-crisis paradigm.
Most manufacturers would like to get to Phase 3 as quickly as possible and mitigate effects along the way. The key to an effective plan, however, holds one or two elements which will change significantly in their businesses. First of all, Supply Chain. Many have commented that the pandemic brings into question the true economics of globalisation in supply chains and in particular, the dominance of China in manufacturing supply chains. Secondly, Human Capital. Many manufacturers have had to run with fewer people and find creative ways to deploy people more flexibly. Likewise, the value/cost of lower paid workers is being called into question. With unemployment potentially accelerating to say 2 or even 3 million in the UK, this adds a further HR headache.
At ADS Laser Cutting we have already started to look at human capital and started to look at the workforce in a flexible way. Our work on balcony assembly continues unabated and so we have had to move some workers to our second site to ensure we keep up with orders. We are also seeing more enquiries and orders from the medical equipment sector and therefore we are being flexible on deliveries with our express service, offering it free of charge.
Demand is the final and possibly the most critical element. The Office of Budget Reporting in its latest economic statement is suggesting a 35% shrinkage in the UK economy by mid-year, but it is also forecasting a fast rebound and fuelling economic growth. The issue is economic growth will take some time to orchestrate, so what gives confidence in the shorter economic bounce back. Well, the observation by talking to producers is that there is pent up demand. One manufacturer said, “we have suspended production, not postponed it and definitely not cancelled it.” This would confirm the view that there is a significant pent up demand in the economy and in manufacturing. If this is true, then supply chains and available workforce to react to this will be under huge pressure, perhaps like that faced by Supermarkets reacting to panic buying. In any event down the years Manufacturing has been seen as a traditional layer of the economic engine, perhaps in different sectors than traditional industries and perhaps more fragmented, but there is evidence to support optimism and it will be interesting to see how Manufacturing copes.