Rising demand from China has helped industrial production drive economic recovery
Factories across Europe are buzzing with activity again, encouraging some industrial bosses to invest in extra production as they shrug off the rise in coronavirus infections that is casting a shadow over the continent’s economic recovery.
Many manufacturers adapted production sites quickly to protect their workers after the pandemic hit, and in recent months they have benefited from rising demand, driven by a rebound in exports, particularly to the resurgent Chinese market.
The resilience of manufacturing has supported the economic rebound in countries with larger industrial sectors. By August, German factory orders had almost reached pre-pandemic levels, while Italian industrial production was already back to last year’s levels.
Italy generates almost 17 per cent of income from manufacturing — less than Germany’s 21 per cent but more than France’s 12 per cent and Spain’s 11 per cent, according to the OECD.
Economists say manufacturers are likely to remain resilient for at least several more months, helped by a backlog of orders and the recent rebound in global trade. On Friday, IHS Markit will publish its latest survey of purchasing managers which is expected to show that activity is continuing to increase rapidly across Europe’s manufacturing sector in October, even as the slowdown in services deepens.
A key part of Europe’s manufacturing sector is the car industry. While European car sales since the start of this year are still down 29 per cent, they have rebounded strongly — boosted by state subsidies for electric and hybrid vehicles in France and Germany — and in September they grew for the first time since the start of the pandemic.
Companies in other areas are benefiting from rising sales in China such as Gea Group, the German maker of machines that produce half the world’s beer, a quarter of its processed milk and a third of all instant coffee.
The overall performance of European manufacturing is patchy, however. Some sectors are still struggling. Aerospace, for example, has been hit by turmoil in the pandemic-stricken airline industry. Airbus plans to shed 15,000 jobs while cutting production by 40 per cent — leaving some of its suppliers scrambling to survive.
Equally, Italian fashion industry suppliers, which enjoyed a steady 2-3 per cent yearly growth over the past five years, have suddenly lost more than 40 per cent of orders this year. Apparel, leather, shoe and accessories manufacturers, including large Italian fashion houses such as Prada and Armani, will have to cope with a €27bn loss of revenue this year and €12bn next year, according to an analysis by Cerved.
Companies in historic fashion districts — such as Lake Como, home to Italy’s main silk and textile manufacturers, and the Marche region, where brands like Tod’s and Poltrona Frau are based — fear the Covid crisis will be their last straw. But what worries industry bosses even more is the possibility that the recent rise in coronavirus infections pushes governments to reintroduce strict national lockdowns.