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As the coronavirus disease known as COVID-19 continues to rampage across the world, bringing industrial production and supply chains worldwide to a virtual standstill, the pandemic will cause a substantial revision in the prospects this year of the industrial market, now projected to decline by as much as 10 percentage points.  

With revenue for global machinery production already in negative growth territory in 2019, the pandemic will exacerbate losses this year. The 1.6% decline in machinery production revenue last year will widen to a steep 14.4% loss in 2020, Omdia projections show.  

The scale of contraction will be the most severe of its kind in more than a decade, exceeded only by the devastating 16.4% plunge in industry revenue in 2008 at the height of the last great recession.  

A second market anticipated to be severely affected is that of the industrial automation equipment. Although revenue this year was previously expected to grow 1.2%, new analysis is now showing revenue will fall by a dramatic 11.1%.  

The chart below shows the forecast in revenue growth for the global markets governing industrial automation equipment (IAE) and machinery production (MP) for this year until 2023. 

 
Machinery Production & Industrial Automation Equipment chart.png

Source: Omdia 
 
These and other findings will form the subject of the forthcoming Machinery Production Market Tracker – Q1 2020 and Industrial Automation Market Tracker – Q1 2020. The reports will examine in detail the impact of COVID-19 on machinery production as well as on industrial automation equipment manufacturing worldwide since the coronavirus outbreak in Wuhan, China, was first acknowledged by the country’s authorities. 

COVID-19 and its domino effect on industrial activity 
With governments worldwide mandating quarantines and ordering the closure of business and commerce deemed to be non-essential to containing the virus, industrial activity around the world has largely ceased. Recession in several major economies will drive down industrial material prices, hurting commodity exporters.  

Certain to suffer will be machinery production in industries with low diversification and tight integration, such as automotive, aircraft, semiconductors, and electronics—areas where a decline in supply is expected. In these industries, outage at a single plant can cause widescale disruption in other production sites, leading to large dislocations and even the halting of operations altogether if the initial point of breakage was serious or significant.  

With its heavy reliance on exports, Japan is expected to take a very large hit in machinery sales. In neighboring South Korea, the shutdown of plants operated by electronics giant Samsung, the world’s largest supplier of memory chips and display panels, will trigger a chain of stoppages throughout its vast network of suppliers, distributors, and resellers as sourcing stops altogether. Such a scenario will be replicated throughout the global industrial landscape across the rest of Asia Pacific, Europe, and the Americas.    

Similarly, within the industrial automation market, process industries ranging from the automotive, shipbuilding, and power to oil and gas, chemical, power, refining, and petrochemical have been hard hit not only by COVID-19, but also by low investor confidence.  

China’s shutdown sent shockwaves to the rest of the Asia Pacific region, where most countries are reliant on China as a key export market for goods and services. Although the pandemic appears under control in China for now, most production and trade activities remain restricted. China has put overseas investment on hold while overseas demand has contracted. 

Meanwhile, the Japanese industrial automation market had been initially expected to recover this year. However, that upturn has now been pushed to 2021, owing to the COVID-19 pandemic. Europe will be hard-hit as well, with Germany and Italy likely to plunge into recession and potentially drag the eurozone with them.  

Long and hard road to recovery 
The unprecedented stoppages and closures will not spare the US or China, despite being the world’s largest economies and thought to have ample defensive resources at their disposal.  

China, the original source of the outbreak, may have successfully contained the coronavirus by now, but even with the assumption that its factories were to resume full production, there will be no markets to supply as the rest of the world will not be equipped to conduct trade. The residual effects of the coronavirus are also likely to cause industrial activity in China to moderate as workers, practicing more caution, slow down the pace of production and assembly.  

Prospects are especially grim in the US, where the combined effects of a volatile political landscape, quarantine edicts, travel restrictions, and the shuttering of business establishments such as restaurants, places of entertainment, and shopping centers have already triggered massive job cuts. The resulting loss of income for large swathes of the population will translate into severe curtailment in consumer spending, causing demand for manufactured goods to all but evaporate.  

As to when the world economy—and by extension, global industrial production—will rebound, the answer to that question will depend on how effectively COVID-19 can be contained. Possible scenarios range from the most optimistic to the grimmest. The usual trend of a stronger bounce back after a drastic economic decline is unlikely to apply this time because of numerous uncertainties at play. Apart from having to contend with a pandemic-induced recession, countries are also bearing the brunt of low oil prices and are faced with the daunting task of damage control post-outbreak.  

Even the most hopeful of scenarios—those envisioning containment or some cure to occur within the next three months, a long shot in many estimations—acknowledge that the effect of the pandemic on the global economy will be brutal and long-lasting. 

The Machinery Production Market Tracker – Q1 2020 is offered under Omdia’s Industrial research pillar. Published quarterly, the report provides a comprehensive overview of global machinery production, including a country-level breakdown of production by machinery type, estimates in market size of 10 automation product types in each machinery sector, and an extensive directory of more than 9,000 builders across Asia Pacific, Europe, and the Americas. Contact us for more details or if you wish to subscribe.  

The Industrial Automation Equipment Market Tracker – Q1 2020 is offered under Omdia’s industrial research pillar. An in-depth quarterly publication, the report covers 5 global regions, 52 equipment types, and 28 industry sectors. Contact us for more details or if you wish to subscribe.