The USA and Europe are both on the brink of a short minor recession in 2024, while the green shoots of a tentative recovery are seen elsewhere in the global manufacturing economy according to the latest
Interact Analysis Manufacturing Industry Output (MOI) Tracker. It also says that stability is returning to some parts of the world, with global manufacturing on the brink of recovery in 2025 — as long as the right fiscal choices are made.
The company‘s forecasts have changed little since the last update and it is looking as though there will be a challenging 2024 for many regions, including the Americas and Europe, before experiencing a better 2025. The predicted recession is not likely to be sharp and should end relatively swiftly, “so long as governments implement the right policies to stimulate growth without creating runaway inflation”.
Since the last quarterly projections from Interact Anaysis, the company has downgraded its predictions for 2024 and reduced expectations around recovery in 2025 as there is some concern that 2024’s downturn could dip into the early part of 2025.
Although China’s forecast for 2023 has been revised slightly downward to 3.2%, it is expected to continue recovering from a slow start experienced at the beginning of this year. As China shows signs that stimulus policies are having an effect, the forecasted growth for 2024 has been adjusted up slightly from 2.9% to 3% and this will help to prop up global manufacturing, which is heavily reliant on China, and would otherwise show a -1.8% contraction – rather than 0.3% growth – if China was excluded from the forecast data.
Stimulus initiativesInteract Analysis, says it will be closely watching the impact of policies such as interest rates and stimulus initiatives on global economies and their manufacturing sectors, with the risk of stagflation or stifled demand very real.
In the latest report the company has extended its MIO forecasts out to 2028 and added Singapore to cover a total of 45 countries, across 72 manufacturing end user sectors, 30 machinery sectors and two points in the supply chain (machinery and manufacturing end users), so the latest forecasts cover more than ever before.
Europe is still struggling with predicted contractions or very slight growth during 2023, which has also led Interact Analysis to cut forecasts for the region by a further 0.5%. In most cases, automotive sectors have performed strongly, but this has not been enough to offset poor performance in other industrial sectors, particularly chemicals and pharmaceuticals, and textile machinery. France (-1.3%) and Germany (-1.4%) are expected to see total MIO growth in negative figures during 2024, following slight increases in 2023, while the UK, having performed poorly in 2023 with forecast growth of only 0.21%, is expected to see minimal recovery from the upcoming manufacturing recession.
Meanwhile, following a strong start to the year, US GDP (gross domestic product) grew by an annualised rate of close to 5% (4.9%) in Q3, but the impact of this on manufacturing output has yet to be seen. Interact Analysis says it is currently on ‘Fed Watch’, as the Federal Reserve’s reaction is likely to dictate how hard or soft a landing the USA experiences. If interest rates are cut too fast, the risk of inflationary pressures return, and even stagflation, which would signal a longer period of poor performance. If interest rates fall too slowly, demand will be constrained and hit the manufacturing industry as well as the wider economy.
There are some brighter spots in the MIO forecast though, with the global automotive industry outperforming other sectors. Having struggled to recover post-pandemic, it has been due a bounce-back for some time. Indeed, the on-highway industry in the Americas region is predicted to have a strong growth rate of 15.4% this year.
Meanwhile, while the semiconductor and components industry has struggled in recent months, Interact Analysis is anticipating a strong return to form in 2024 as over-stock issues wane. This slump is largely a result of the unsustainably strong performance from the sector in recent years and the inevitability that there would be a market correction at some point, although the anticipated drop during 2023 is not expected to be as sharp as initially feared.