What explained the weakness in manufacturing in 2018-2019?
During 2018 and 2019, the manufacturing industry in the euro area saw a stronger slowdown than elsewhere owing to its greater dependence on exports, in an international environment marked by heightened trade tensions and uncertainty.
In early 2018, certain confidence indicators, such as the PMI in the manufacturing industry, started to deteriorate on a world-wide basis. However, this trend was more pronounced in the euro area than in other major economies, like the United States and China. Evidence of the slowdown in the manufacturing industry has not remained confined to just confidence indicators, but has also been confirmed by the so-called hard indicators, such as industrial production or value added in the manufacturing industry. The hard indicators also suggest that the decline in the euro area was more pronounced than elsewhere.
The last few years have been marked by growing international uncertainty, notably due to heightened trade tensions and the increasingly protectionist tendencies. This growing uncertainty has been reflected by slowing growth rates of investment in several major economies, despite the still favourable investment climate. Investment is generally very trade-intensive and its slowdown consequently hit international trade flows. On top of that, there has been the rebalancing of the Chinese economy towards an economic model that is geared to domestic consumption and import substitution.
As a result, there has been a clear slowdown in world trade growth, which even entered negative territory at the end of 2019. Compared with other large economies, the euro area is more vulnerable to this kind of slowdown given that its value added is much more export-oriented. That explains why the manufacturing industry in the euro area has suffered more than its counterparts in the United States or China.
While value added has contracted in the manufacturing industry in the euro area and in the neighbouring countries, this has barely been the case in Belgium. This relatively better performance is partly due to the composition of the Belgian manufacturing industry, which is largely based on less business-cycle-sensitive branches of industry, like pharmaceutical products and food and drinks. Moreover, these specific branches of activity in Belgium have also posted relatively stronger growth than in the euro area.