The International Monetary Fund (IMF) has released a dreary global outlook for the world economy, and the fate of manufacturing lies at the heart of future projections.
Noting that slowdowns in manufacturing around the globe has been part of sluggish growth in 2019, the sector that is of most concern is the automobile manufacturing industry, which has had ripple effects in Europe and China. This decline in manufacturing is distinct from the strength of the global services sector, yet if manufacturing continues to decline, there will be a spill over into the services sector.
Coming in as the cause of this slow down, according to IMF economic counsellor, Gita Gopinath, is the trade barriers that have sprung up around the world. In addition, Gopinath outlines how policies have not made use of all levers that are available.
“Monetary policy cannot be the only game in town and should be coupled with fiscal support where fiscal space is available and where policy is not already too expansionary,” she wrote.
Indeed, with global manufacturing activity at levels similar to the global financial crisis, reflected in global growth falling to 3.0 per cent, the lowest since 2008-2009.
Countries that have been hit the hardest from these global factors are those with exposed value chains, such as east Asian economies and Germany, where industrial production is lower than a year ago. The UK, China, and the US, were affected by these trends as well, however to a lesser extent.
As Australia’s resources sector has held up some local demand for manufactured products, local industry has been able to not feel the full force of the global contractions affecting other countries. The latest Australian Performance of Manufacturing Index (PMI) saw an expanding manufacturing sector, with the index sitting at 54.7, while the global PMI, in the IMF report, fell below 50.
Commenting on the IMF’s prognosis, Ai Group chief executive, Innex Willox, noted that governments needed to act.
“Our economy needs a spark to regain momentum and rebuild confidence to combat the local and international pressures which are a drag on business and consumer confidence.
“It is time for Australia’s governments – at the federal, state, territory and local levels – to work more effectively together to impart a more active stimulus than is currently in the pipeline,” said Willox.