global manufacturing activity slows down

Most markets see record input cost pressures and selling price increases

All firms with links to manufacturing should note the rapid deterioration in the outlook since Russia’s invasion of Ukraine, and shift business plans and targets accordingly. A manufacturing sector that was already struggling with rising input costs and selling prices is now facing greater supply chain disruptions, higher inflation, and exacerbated shortages. Early data points to a small set of market winners and a plethora of losers in this environment, which firms should account for in reviewing their global portfolio.


Global manufacturing sunk in March to its worst performance in 18 months, according to surveys of purchasing managers. The slowdown was driven by stagnation in intermediate manufacturing and investment goods manufacturing, while consumer goods manufacturing strengthened slightly. Across nearly all markets, input price inflation accelerated to rates well above their long-term average, which drove a similar acceleration in selling price inflation as producers passed on price increases. Amid surging cost pressures and a deterioration in the outlook stemming from the war in Ukraine, business optimism fell to its lowest in 1.5 years.

Aside from Russia, whose manufacturing sector plummeted into deep contractionary territory in March, several of the weakest performers were in Asia Pacific. China’s manufacturing activity fell into contraction, as virus lockdowns led to a drop in output and demand. Malaysia’s manufacturing sector also dipped into a slight contraction, while Vietnam’s and South Korea’s slowed. All three markets faced COVID-19 headwinds that slowed demand and exacerbated labor shortages, which were then compounded by new pressures from the war in Ukraine.

Our View

March’s manufacturing Purchasing Managers’ Index (PMI) data gives an early signal of what lies ahead for global manufacturing following Russia’s invasion of Ukraine. So far, headwinds from the war are hitting Asian and especially European manufacturing hard. At the beginning of 2022, several European markets were experiencing strong manufacturing demand and robust activity even despite high cost pressures. Now, Europe faces a supply shock and a demand shock at the same time. Due to surging costs and falling demand, manufacturing output is contracting in Poland and the Czech Republic. Although output grew in Germany and Spain, new orders declined—suggesting production declines in Q2.

On the flip side, a handful of markets, including Saudi Arabia, Australia, the US, and Canada, are facing resilient demand growth thanks to their relative insulation from the war’s supply chain impacts and their large extractive sectors, which benefit from higher commodity prices. However, all markets are seeing exacerbated cost pressures.

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