Global Decline in Manufacturing Raises Fears
Since it was founded by his great-grandfather in 1880, Carl Martin Welcker’s company in Cologne, Germany, has mirrored the fortunes of manufacturing, not just in Europe but around the world.
That is still true today. In a pattern familiar to industrial businesses in Europe, Asia and the United States, Welcker says his company, Schuette, which makes the machines that churn out 80 percent of the world’s spark plugs, is facing “a tragedy.”
Orders are down 50 percent from a year ago, and Welcker is cutting costs and contemplating layoffs to prevent Schuette from falling into the red.
That manufacturing is in decline is hardly surprising, but the depth and speed of the plunge are striking and, most worrisome for economists, a self-reinforcing trend not unlike the cascading bust that led to the Great Depression.
In Europe, for example, where manufacturing accounts for nearly a fifth of gross domestic product, industrial production is down 12 percent from a year ago. In Brazil, it has fallen 15 percent; in Taiwan, a staggering 43 percent. Even in China, which has become the workshop of the world, production growth has slowed, with exports falling more than 25 percent and millions of factory workers being laid off.
In the United States, until recently a relative bright spot for manufacturing despite the steady erosion of blue-collar jobs, industrial output fell 11 percent in February from a year ago, according to statistics released Monday by the Federal Reserve.
“Manufacturing has fallen off the cliff, and it’s certainly the biggest decline since the Second World War,” said Dirk Schumacher, senior European economist with Goldman Sachs in Frankfurt.
The pattern of manufacturing and trade ominously recalls how the financial crisis that began in 1929 grew into the Great Depression: Tightening credit and consumer fear reduced demand for manufactured goods in one country after another, creating a downward spiral that reduced global trade.