A new report from EY has indicated that European manufacturing is set to experience a significant slowdown due to a number of factors. These include the ongoing conflict in Ukraine, a reduction in global trade, excessive inventories, and vulnerability to energy price increases. The report warns that these issues are likely to put pressure on the manufacturing sector, which is a major contributor to the European economy.
The EY report highlights the impact that the conflict in Ukraine is having on Europe’s exports, which is expected to lead to a decline in manufacturing activity. It also notes that the slowdown in global trade is likely to have an adverse effect on Europe’s most important trading partners, including the United States, the United Kingdom, and China.
The report further states that the excessive build-up of inventories during the post-pandemic boom is also expected to affect manufacturing activity in Europe. Many companies have stockpiled goods in anticipation of a surge in demand, but with demand slowing down, they will need to adjust their inventories, which could negatively impact industrial output. This is expected to have a significant impact on countries such as Germany, Poland, and France.
Despite some relief with supply bottlenecks receding, the report warns that the tight labor market could lead to workers using their bargaining power to recoup lost income, resulting in higher wage costs that could further impact the manufacturing sector.
Finally, the report highlights Europe’s vulnerability to a renewed increase in energy prices, with Romania, Hungary, and Czechia likely to be the most adversely impacted.
As the global economy continues to recover from the pandemic, policymakers will need to carefully consider the impact of these factors on the manufacturing sector in Europe and take steps to address them.