A global upsurge of the corona virus and foreign measures in response could hit the Dutch manufacturing and transport sectors hard. Turnover in these sectors is heavily dependent on global export demand, warn the Netherlands Bureau for Economic Policy Analysis (CBP) and Statistics Netherlands (CBS) based on research. In contrast, ABN AMRO and Nevi expect the impact of a second corona wave on Dutch industry to be relatively limited.
Centraal Planbureau (CBP) and Centraal Bureau voor de Statistiek (CBS) in their report draw a comparison with the Dutch service sector, which is mainly affected by domestic measures related to the coronavirus. In contrast, the manufacturing and transport sector is affected by measures in other countries and a decline in global trade. CBP and CBS therefore warn that new lockdowns abroad could have major economic consequences for both sectors.
Demand declines
Consumption, for instance, has declined in many countries since the corona outbreak. Manufacturing and transport companies are facing lower demand from abroad due to measures taken locally there. Dutch exports were 15% lower in the second quarter of 2020 than in the same period a year earlier. The World Trade Monitor shows that world trade fell 16% between March and May. In June and July, world trade rebounded. However, this rebound is threatened by the second corona wave currently gaining momentum globally.
CBP and CBS draw different scenarios for a global lockdown in their report. In a 'light' scenario where this lockdown lasts three months - similar to the lockdown in spring - value added in the transport and storage, electronics and engineering sectors falls by 7% to 13%. If the global measures last longer, this decline is higher.
How important exports are for the Netherlands is also shown in the report. For instance, about a third of the Netherlands' employment and GDP is directly or indirectly linked to export activities. The CBP and CBS also warn of the major "spillover effect" if companies in these sectors fail. For instance, they are part of a network of Dutch suppliers and buyers, which will be affected. These are particularly SME entrepreneurs.
ABN AMRO and Nevi see industry recovering further
ABN AMRO and Nevi paint a different picture. The NEVI Purchasing Managers' Index points to a further improvement in business activity in Dutch manufacturing. The index rose from 52.3 points in August to 52.5 in September. The increase is mainly due to an increased upturn in production, combined with higher buying and selling prices. Dutch entrepreneurs also benefited from an increase in export orders, which are rising thanks to a gradual recovery of industrial activity in most countries.
Despite the rising number of COVID-19 infections in most European countries and rising unemployment, the industry is continuing its tentative recovery for now. This is mainly due to a gradually picking up in global trade. For instance, ABN AMRO and Nevi point to the recovery in Chinese manufacturing. This levelled off in September, but the Caixin Purchasing Managers' Index still points to growth. The Chinese recovery is likely to have a positive impact on new export orders in the eurozone, with Germany in particular benefiting. Germany's preliminary purchasing managers' index for manufacturing improved to 62.2 in September from 57.7 in August, which is the highest score over two and a half years. The continued recovery of German manufacturing could ensure further improvement in new export orders for Dutch entrepreneurs in the coming months.
Order books are shrinking at a rapid pace
That does not mean, by the way, that Dutch manufacturing companies are not affected by the corona crisis. Although the number of new orders has continued to pick up since the April downturn, order books continue to shrink at a rapid pace. In practice, this means that more outstanding orders are being finished or withdrawn than new orders are coming in. This is forcing many companies to cut jobs to achieve cost savings. There are also operational problems. For instance, technical staff are not available everywhere due to travel restrictions.
Despite this, ABN AMRO expects the impact of the second corona wave on Dutch industry to be "relatively limited". "During the first wave, many car factories in Germany and other European countries closed down due to a lack of parts from China. That resulted in a historic drop in new export orders in April. This time, China seems to have the situation under control and so there will be no shortage of Chinese parts," ABN AMRO writes in a press release. European factories have also taken measures to prevent contamination in the workplace. ABN AMRO therefore expects industrial production to continue relatively unhindered during the second corona wave. However, absenteeism and further drop in demand remain major risks.
The study by the CBP and CBS can be found here. Further information on the NEVI Purchasing Managers’ Index is available here.
Author: Wouter Hoeffnagel
