Manufacturing Activity Rebounding Faster Than Service Sector

Countries that largely depend on exporting manufactured goods are starting to see economic recovery, even as service-oriented businesses continue to suffer from the pandemic’s toll on revenue, The Wall Street Journal reported on Friday (Feb. 19).

Despite renewed lockdowns due to increasing numbers of virus cases, manufacturers in Europe and Japan have seen a swift uptick in output and demand in February compared to the earlier months of the COVID-19 pandemic. Service businesses that typically need to see people in person, however, have seen further declines in output activity.

An increase in factory output activity is an indicator that the global economy will continue rebounding later in 2021 as vaccine distribution expands. The purchasing managers index (PMI) this month shows there is a deepening economic divide between the manufacturing and service sectors.

“Assuming vaccine rollouts can boost service sector growth alongside a sustained strong manufacturing sector, the second half of the year should see a robust recovery take hold,” said Chris Williamson, chief business economist at IHS Markit, per WSJ. IHS Markit is responsible for purchase manager surveys.

Germany’s PMI for the manufacturing sector reached a three-year high, hitting 60.6 in February from 57.1. Any number higher than 50.0 is an indication that activity is increasing. The PMI for the country’s services sector plummeted to a nine-month low, hitting 45.9 from 46.7 this month. Manufacturing is a big percentage of Germany’s economy compared to other European countries. The Eurozone has overall experienced a continuing contraction in its economy.

“Economic growth is expected to resume in the spring after a very challenging winter,” Ireland’s Finance Minister Paschal Donohoe told a group of Eurozone finance ministers, per WSJ.

The digital transformation accelerated due to the lockdowns and social distancing mandates that made remote work and learning the norm. October research by Alibaba indicated that small U.S. manufacturers expanded digitally more than any other sector. 

The lack of global tourism during the pandemic has taken a toll on numerous retail chains that have been largely dependent on vacationers to drive sales. Abercrombie, for example, has been forced to shutter numerous locations due to the lack of foot traffic from travelers.

A resurgence of the virus across Europe triggered new lockdowns in November, further stifling any hopes of an increase in travel. Tourism accounts for 11 percent of the GDP in the 23 member nations of the European Union.