AAP3798102-00130 Whether the recovery will continue remains unclear

Although the global manufacturing industry has bottomed out, there are still many variables in whether it can continue to rise.

AAP3798102-00130 “The German manufacturing sector is making modest progress, with the PMI recording a five-month high in November, but it is still far from stable, let alone a growth recovery.” IHS MARKIT economist Phil Smith said.

For the future of the manufacturing industry can continue to recover, CICC macro believes that it still depends on the recovery of global demand.

“The global manufacturing sector is in a passive destocking phase.” Cicc macro analysis said that the global recovery resonated in the late period of 2016 and continued until the end of 2017, and the global manufacturing industry actively added inventory. However, since 2018, under the influence of factors such as intensifying trade frictions and faster interest rate hikes by the Federal Reserve, global demand has slowed down, and the manufacturing industry has first experienced passive inventory addition, and then began to enter the active deinventory stage in the fourth quarter of 2018 and continued around August this year.

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AAP3798102-00130 Since the second half of this year, with the Federal Reserve leading the global central bank to ease, global demand has also been marginal repair, new orders for manufacturing in Europe and the United States began to rebound in September, and the manufacturing industry has entered the passive destocking stage.

AAP3798102-00130 Cicc Macro expects that the global manufacturing industry may experience a wave of restocking cycle in the first half of 2020. As global demand continues to repair at the margin, the global new orders/inventories ratio has risen since September. Therefore, the global manufacturing industry, which has experienced a long period of destocking, may gradually shift into the replenishment stage in the near future, supporting the global industrial sector output repair.

For the future volatility of global manufacturing demand, the positive factors include the financial conditions brought about by the easing of global central banks such as the Federal Reserve to support demand, especially for real estate and durable goods consumption; At the same time, economies such as the eurozone, Japan, India, and the United Kingdom have pursued expansionary fiscal policies.

“Downside risks include continued trade frictions; Us fiscal stimulus fades.” Cicc Macro expects that in the base case, global growth will gradually bottom out under the support of policies.