China is loosening the criteria for factories to resume operations as it walks a tightrope between containing the coronavirus and preventing a slump in the world's second-largest economy | Representational Image | Qilai Shen | Bloomberg
China is loosening the criteria for factories to resume operations as it walks a tightrope between containing the coronavirus and preventing a slump in the world's second-largest economy | Representational Image | Qilai Shen | Bloomberg
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Singapore/Hong Kong/Frankfurt: Factories around the world suffered one of their grimmest months on record in March, as the led to mass shutdowns and wreaked havoc on supply chains.

Figures from Asia to Europe and the U.S. showed manufacturing taking a severe hit, with demand, employment and production all in decline. The global Purchasing Managers Index excluding China fell to the lowest since 2009.

U.S. factories saw orders and employment tumble the most in 11 years in March, according to a separate report from the Institute for Supply Management. The headline number performed better than expected, but only because increased delivery times are distorting the results.

The global reports reflect a worsening in the virus outbreak. A surge in cases in Italy, Spain, and the U.S. brought those economies to a halt in March, providing an additional punch to Asian nations that have been battling the virus for months. Companies from car manufacturer Renault SA to parts maker Johnson Matthey Plc have halted production at multiple sites.

China’s PMI improved, lifting the global index, but economists caution the better reading was inevitable as workers returned after an unprecedented shutdown and doesn’t yet signal a firm rebound.

In the euro area, manufacturing shrank in Germany, France and Italy, the region’s three largest economies. Italy’s index of output dropped to the weakest since the series began in June 1997. The U.K. also reported a sharp drop in factory output and employment.

“The concern is that we are still some way off peak decline for manufacturing,” said Chris Williamson, chief business economist at IHS Makit. “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.”

In response to the threat to businesses, jobs and people’s livelihoods, central banks have slashed interest rates and ramped up bond-buying and other liquidity measures to stabilize financial markets. Governments have unleashed eye-popping amounts of stimulus to aid consumers and businesses.


Also read: Banks finally start moving on 3-month loan EMI deferment, after push from govt and RBI


What Bloomberg’s Economist Say…

“Will the sudden stop in the global economy trigger a financial crisis? All-out support from central banks and hopes for rapid control of the outbreak mean so far the answer is a tentative ‘no’. That could change.”
–Scott Johnson, Tom Orlik. Read the full Global Insight.
In central Europe, where manufacturing is the main growth engine, factories were plunged into the deepest declines since at least the last global recession. In Sweden, the confidence fell the most on record as major companies started closing production.

There has been little sign of an easing in the pandemic in Europe, with Spain suffering its deadliest day on Tuesday. Italy and the Netherlands are discussing prolonging lockdown measures, and German officials warned that things could still get worse.

In the sign of the hit that Europe’s largest economy has sustained, German companies filed almost half a million applications for financial aid under a government support program in March.

Asia’s factories see darker outlook on virus even as China perks up
Across Asia almost all of regional purchasing managers indexes except for China fell further below 50, the dividing line between contraction and expansion. Japan and South Korea posted their worst readings since the global financial crisis more than a decade ago.

“As the region increasingly has less mobility due to measures to contain the virus, the April PMI will show weakness,” said Trinh Nguyen, a senior economist at Natixis SA in Hong Kong. “Even more worrying is its biggest customers — the U.S. and the EU — are not consuming and thus will hurt new orders in the second quarter of 2020.”- Bloomberg


Also read: These are the 5 Ps that will help determine if stock markets have bottomed out


 

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