Adrian has been conducting research on, and managing teams of analysts covering, the technology industry for over 20 years. He has pioneered many data analysis techniques and methods that are used widely by analysts today, as well as having created frameworks for measuring numerous technology markets from industrial automation products to semiconductors.
Interact Analysis’s latest quarterly update of its Manufacturing Industry Output (MIO) Tracker is published this February. One year into the pandemic, and the dust is beginning to settle as regions confront the virus and recover with varying degrees of success. Whilst 2020 updates to the MIO were broadly on the mark in their regional predictions, there was one major exception. Nobody expected China, where, by all accounts, COVID-19 originated, would suppress the virus so vigorously, enabling swift industrial recovery. Interact Analysis had, at our most pessimistic point, predicted a 4% contraction for China for 2020, but the region has in fact posted 1.9% growth. This had a knock-on effect on global predictions, the -8% global contraction forecast for 2020 made in the middle of that year in reality being only -3.9%. So where do industries stand now, and what does the future hold? In this insight we take a look at some key regions and industrial sectors.
Regional Perspectives: Asia streaks ahead while Europe struggles
The chart above gives a good visual representation of Interact Analysis’s latest research findings. Taking the red dotted line as the benchmark where output returns to 2019 levels, we see some regions streaking ahead. China is obviously the frontrunner, and Korea also had a ‘good’ pandemic so far. But what is driving this growth, and why is it that at the other end of the scale Germany is struggling so badly?
We have seen how China’s suppression of the virus – using measures probably unacceptable in Western democracies – enabled the country to maintain output growth in 2020. A significant factor here was the huge internal market for products, export markets being hit hardest by the virus. Korea’s track-and-trace strategy has been hugely effective, and the region is more or less back to normal, with very strong growth in the electronics and components sectors resulting in an overall negative growth of only -2.4% for 2020, which is significantly better than predicted at the start of the pandemic. Although Germany is considered to have handled the pandemic crisis comparatively well, its economy has suffered, and recovery will be sluggish. Key factors here are the country’s huge reliance on export markets in Eastern Europe and globally, especially in the automotive and metals sectors, which are two of the worst hit industries. German manufacturing has in fact been in decline since mid-2018.
A glance at some key sectors…
Rubber and plastics machinery is a good sector to look at first, given that the COVID-driven demand for plastic and rubber medical supplies and personal protective equipment (PPE) will be a key driver for growth over the forecast period. The production of vaccines could also be a driver depending on how the vaccine will be administered. However, the sector did experience a decline in 2020 across all major regions, the worst impacted being Korea, India, and the UK, with contractions in production of -15.8%, -13.9% and -13.4% respectively. Interact Analysis expects all of the top 10 regions to recover to 2019 levels by 2023 at the latest. The countries with the highest CAGRs are France and Italy with 5-year CAGRs of 5.0% and 4.9% respectively, whilst the lowest CAGR is forecast for the UK at 1.9%.
Everybody has to eat and drink, pandemic or no pandemic, so the forecast is for the food and beverage machinery sector to be minimally affected by COVID-19 in the long-term. That said, there was a serious contraction in sales in 2020 as investment dried up, notably in European countries, where the largest impact was in Germany and Italy which were thought to experience negative growth of -13.4% and -14.9% respectively.
Major regions should recover to 2019 levels by 2022 at the latest, but Europe will lag behind due to a struggling machinery sector and the likely impact of Brexit. Globally, the industry should maintain a steady growth trajectory through to 2025, with growth of 3.8% predicted for 2021. Though Europe has struggled, the predicted top 3 regions with the highest CAGRs from 2021-2025 include two European countries – Italy, the USA, and Germany with expected CAGRs of 6.3%, 5.0% and 4.7% respectively heading the field.
The machine tools sector is however in serious difficulty. Few of the major machine tool producing regions will come close to 2019 levels in the next 6 years. The only ones that do surpass 2019 levels are China, India, and Brazil; and Brazil will only achieve that because the market is relatively speaking very small. Many countries in Europe were badly hit, with Interact Analysis predicting that the UK market will shrink by -31.1% and the German market by -30.0%. The following chart brings the sector’s difficulties into sharp relief…
The CAGR from 2021-2025 for the overall machine tools industry is 4.3%. However, China and the US accounted for around 55% of the market in 2020, which is skewing the industry to look better off than it is overall. If you remove China and the US from this the CAGR for the industry is only 2.8%.
Europe, Japan, and Korea are the real losers in the machine tools market. Japan and Korea are struggling to compete with China; and Europe in general is struggling with the COVID-19 pandemic. Until we see an increase in the number of orders booked it is difficult to envision a recovery timeline which does not extend past the scope of this study.
Much depends on our global battle with the COVID-19 virus. Will the ongoing vaccine programme bring relief? Are we about to move into a period of sustained recovery? With the quarterly updated Manufacturing Industry Output Tracker, Interact Analysis is keeping its finger on the pulse of global manufacturing and hopes to provide positive answers to these questions.
For more information about the MIO, please contact Adrian directly on firstname.lastname@example.org.