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Robust production growth in the US, Australia - and a renewed
expansion in Japan - contrasts with a near-stalling of output in
the UK
Brexit reported as playing a key role in UK manufacturing sector
weakness
Preliminary survey data on manufacturing conditions in February
showed strong manufacturing growth in the US, Australia and
eurozone, plus an improving production trend in Japan, contrasting
with a near-stalling of output in the UK. The latter's plight can
be linked to companies reporting falling demand since the ending of
the UK's Brexit transition period with the EU.
Improving production trends in most
countries
Flash PMI survey data from IHS Markit showed manufacturing
output growth accelerating in the eurozone to reach the
second-fastest in three years, the rate of expansion coming close
to the strong pace recorded in the US during the month. Although
factory output growth moderated in the US during February, it
remained among the highest rates seen over the past decade, thanks
to a further marked increase in new orders and exports. Many parts
of the US were also adversely affected by extreme weather during
the month, making the February reading particularly impressive.
Production growth also cooled slightly in Australia but, like
the US, had been especially strong in January. February's expansion
was consequently the second-best seen over the past three years,
pointing to a sustained robust recovery.
Meanwhile in Japan, which has lagged the global rebound from
initial COVID-19 lockdowns over the past year, manufacturing
production returned to growth in February for the first time in
over two years, led by rising exports.
UK factories report near-stalling output
The UK has bucked this wider trend of improving manufacturing
performance so far this year, however, with output growth coming
close to stalling in both January and February. Some of this
slowdown in the UK was reported to have been attributable to a
payback from pre-Brexit stockpiling ahead of the UK's departure
from the EU (the transition period ended on 31st December, but it's
worth noting the UK also underperformed compared to the eurozone
and the US during the fourth quarter of last year in this Brexit
lead-up period).
A closer analysis of the reasons provided by UK manufacturers
for lost orders, exports and falling output underscores the role
that Brexit appears to be playing in the UK's relative
underperformance. A word cloud, shown below, for example,
highlights the phrases most commonly cited by survey contributors
in explaining lower exports.
In this graphic, the larger the word, the more times it was
cited. Brexit is therefore clearly cited far more frequently than
COVID-19, though the latter tended to be the most commonly cited
cause of lost sales by manufacturers in other countries. In fact,
although 26% of UK manufacturers reporting a drop in exports linked
the decline to COVID-19, more than twice as many (some 56%) linked
the decline to Brexit.
While manufacturing economies in other countries appear to be
gaining strength in 2021 so far, as the impact of the COVID-19
pandemic wanes and exports play an increasing role in driving
growth in countries such as the US, Japan and the eurozone
(especially Germany), the UK appears to be losing out due to
disruptions arising from the departure from the EU.
Whether these are temporary problems relating to the recent
ending of the transition period, or the first indications of a more
longer lasting shift in trade patterns, remains unclear at this
stage.
Chris Williamson, Chief Business Economist, IHS
Markit
Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.
