Global Manufacturing Industry's Outlook to Remain Positive, Says Moody's

The outlook for the global manufacturing industry remains positive, reports New York-based finance service company Moody’s.

The inaugural global report considers fundamental business conditions for manufacturers in North America, Europe and Asia-Pacific over the next 12 to 18 months.

“We expect industry EBITDA (earnings before interest, taxes, depreciation, and amortization) growth of 3.1% through 2018, on strong market demand indicators and improvements in operating efficiencies and profitability,” says David Berge, Moody’s Senior Vice President.

Moody’s views modest EBITDA growth of 1%-3% as an indication of average operating conditions in the industry, while growth in excess of this range would be considered above-average. Conversely, growth of less than 1% would indicate a deteriorating operating environment.

North American and European manufacturers will benefit from very strong economic indicators, particularly each region’s Manufacturing Purchasing Managers’ Index (PMI).

In Asia-Pacific, manufacturing growth will be driven in large part by technology, mainly strong demand in the processes and controls segments for electric components and semiconductor products.

Among manufacturing segments, Moody’s expects demand growth to be strongest in aerospace and defense, due to robust order levels and support from defense budgets, and weakest among suppliers to utilities, which face increased pricing pressure.

Commodities-driven segments, such as agriculture and mining, are rebounding from their cyclical troughs, while energy/chemicals, automotive and transportation (including automotive) should see modest growth.

The manufacturing industry is also forecast to face less environmental risk than the highest risk industries. However, risks are rising due to intensifying global efforts to limit carbon emissions.

According to the report, environmental risks are higher than average in some manufacturing segments, including suppliers to the automotive, oil gas and mining industries, which will experience elevated carbon transition impacts.

Manufacturers with large business portfolios have significant abilities to redesign products in response to environmental risks and liabilities.

Moody’s expects manufacturers’ efforts to respond to evolving environmental risks to be one of the factors that reshapes product lines and markets in the years ahead. In some cases, this will result in opportunities rather than risks due to growth in such areas as solar power, electric vehicle components, and improved emissions control systems.

In the Asia-Pacific region, Moody’s expects strong demand in the growing processes and controls segments for electric components and semiconductor products, including memory chips and imaging sensors.

According to the report, demand in this region is primarily supported by rising Internet of Things (IOT) investments and slowing but still-healthy growth in shipments of mobile devices.