June 3, 2021

InteractMicroChips400x275Market intelligence company Interact Analysis is predicting a slower-than-previously-expected global recovery from the pandemic, due to problems in the semiconductor sector and the looming “black cloud” of inflation. The predictions are part of the company’s latest quarterly update of its Manufacturing Industry Output (MIO) Tracker, which includes data from three new key regions – Malaysia, Indonesia, and Vietnam.

Interact said good performances in the U.S., South Korea, and China will be offset by regions in Europe and Japan, which have struggled with the pandemic but are expected to make a swift recovery. Meanwhile, India and Brazil, which continue to fare badly, will likely see a slow recovery.

The firm cites that the COVID-19 vaccine rollout has been uneven, causing some economies to open up more slowly than others. The Europe, Middle East and Africa (EMEA) region has fared relatively badly, Interact said. “In February 2021, for example, while the U.K. registered 89.8 vaccination doses per 100 people, Germany registered only 54.2,” the firm said. “France and Italy currently measure 48.6 and 51.9 per 100 respectively. The region saw a major hit to the economy in 2020 with growth slumping by around -10%, and the slow vaccination rate will keep growth down to 6% in 2021.” In the U.S., which is currently running at about 85.4 doses per 100 people, the economy is expected to be fully open by this summer, turning a relatively modest negative manufacturing growth of -3.7% in 2020 into positive expansion (6.4%) in 2021. China is the only country that saw positive manufacturing growth in 2020 (1.9%), and is now back to normal levels of production in spite of a limited vaccine rollout, Interact said.

Several factors have led to a serious shortage of microchips, with repercussions for electronics and automotive sectors, which then has a consequent effect for industrial automation companies, the firm said. In the longer term, the company’s research shows that the current period of unusually strong semiconductor growth as a result of the shortage will be followed by a crash in the market sometime around the end of 2023 or the beginning of 2024. Interact said this is driven by two factors: semiconductor companies are investing in new capacity to deal with current elevated demand, and semiconductor customers are currently stockpiling and will soon have more than they need.

Machinery vs industry MIO value growth USD fixed average

“These have been incredibly difficult times for the global manufacturing sector, and we’re by no means out of the woods yet,” said Adrian Lloyd CEO at Interact Analysis. “The chip shortage will continue for some time to come. Furthermore, the vast scale of quantitative easing and financial support that was applied by governments during the pandemic, amounting, for example, to a massive 54.5% of GDP for Japan, and 39.5% and 26.5% for Germany and the U.S. respectively, means that serious inflation is almost inevitable in some key regions. The effects of COVID are going to stretch some way into the future.”

For more details on the MIO Tracker, visit the Interact Analysis website.