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Global Fatigue of Manufacturing

The current phase of slower growth in the manufacturing sector can be defined as fatigue. The indications for it are clear from a thorough analysis of Global Manufacturing PMI(Purchasing Managers Index).

The trend is moving towards lower business confidence for the next twelve months as uncertainty levels rise and this translates into lower new orders, especially export orders. Though the production levels are stable due to backlog work there might be a contraction coming in the next two or three months.

This is leading to a reduction in the stock of raw materials at a slower rate and an increase in inventory of finished goods as the level of demand anticipated is not translating into actual sales or new orders.

On a positive note, the supply chain has seen some level of easing especially in major manufacturing hubs except China. Most countries have also reported a slower rate of inflation on monthly basis.

That is the current phase points more towards fatigue rather than a recession or de-growth. But this does not rule out turning into either of them in the medium term as the factors impacting stay uncertain for a longer period.

The risk of this trend combined with aggressive central banks might result in a pause or delay of capacity expansion by many companies. This becomes a risk in long term, as the reversal of demand due to a reversal in factors impacting it would put further pressure on the supply chains and initiate the next leg of inflation.


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