China's lockdowns - Accelerating output in the US is offset by near-stagnation in Europe and a deep contraction in China

Despite pockets of resilient activity, manufacturing activity faces headwinds from virus disruptions in China, war spillovers, and rampant input cost inflation

As global manufacturing activity stagnates, firms serving the sector can win in this environment by concentrating their efforts on riding sequential “waves” of demand over the coming months. Slowdowns in Europe and China will be partially offset by resilient demand in the Americas, the Middle East, and parts of Asia. Firms can concentrate their targets and sales efforts in these regions in the short to medium term, while preparing their operations for an eventual recovery in Europe and China (which may not begin until mid-2023). High input costs and selling price inflation will continue to be the theme for the next two quarters due to continued logistics and commodity price pressures.


Global manufacturing activity sank further in April to its worst performance since August 2020, according to surveys of purchasing managers. Overall manufacturing output contracted, led by a steep decline in Chinese production resulting from severe COVID-19 restrictions. Excluding China, manufacturing output expanded moderately in April, but activity was nonetheless held back by stagnating new orders and falling export orders. Accelerating input prices and selling price inflation also contributed to weaker demand and souring sentiment—further evidence that high global inflation is eroding demand in global manufacturing, to a varying extent across markets.

Europe saw a broad-based deterioration in manufacturing sector conditions, as input cost inflation accelerated amid soaring energy costs and supply chain disruption caused by the war in Ukraine. Output rose modestly in Poland and the Czech Republic, but new orders continue to decline. In Germany, output and new orders both contracted for the first time since June 2020. In the eurozone as a whole, output growth eased to its worst performance since mid-2020.

Outside China, most of APAC is experiencing resilient manufacturing activity. Although China’s lockdowns have tempered demand for manufactured goods throughout the region, most of APAC, especially Southeast Asia, benefited from renewed activity after virus-related disruptions earlier this year. However, cost pressures are intensifying across Asia as commodity price increases dovetail with logistics challenges associated with China’s manufacturing downturn.

The US was among a handful of markets that saw improving manufacturing conditions in April, as output growth accelerated and inventories rose at the fastest pace in the survey’s history.

Our View

The intensity of the headwinds facing global manufacturing suggest that conditions will worsen further in the next quarter. Most of Europe’s manufacturing is still in expansion mode, but declining new orders point to falling production in Q2 and Q3. Likewise, the persistence of China’s lockdowns will likely further exacerbate supply chain challenges and inflationary pressures in Asia and around the world. However, despite a likely downturn in global manufacturing activity, several markets—primarily commodity exporters in the Americas, Middle East and Asia—will show continued resilience.

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