Resilience of the manufacturing industry to crises

Since the Industrial Revolution and overproduction crises of the XIX century the very concept of "economic crisis" is associated with closed factories. And what is the situation now, when the traditional manufacturing industry is no longer the main economy?

SBS Consulting experts tested to what extent the manufacturing sector performed better or worse during the last two global crises — the financial and economic crisis of 2008-2009 and the "coronacrisis" of 2020 in industrialized countries.

Manufacturing industry in crisis

General information:

• Manufacturing has traditionally been associated with greater resilience to economic crises than services.
• In the modern era, despite the growing importance of the service sector, manufacturing retains a significant role in many economies.

Comparison of the 2008-2009 and 2020 crises:

• In the global financial crisis of 2008-2009, manufacturing was hit harder than the economy as a whole, especially in developed countries.
• In the 2020 pandemic crisis, manufacturing was more resilient than services.

Manufacturing resilience index

Calculation methodology:

• The resilience index is calculated as the difference between the growth rate of industry and the growth rate of GDP in percentage points.
• The index measures whether manufacturing is doing better or worse in dealing with crises compared to the economy as a whole.

Findings of the study:

• In developed countries, manufacturing was on average less resilient to the 2008-2009 crisis (6-8 pp worse than the economy as a whole).
• In the 2020 pandemic crisis, manufacturing showed better resilience than in the previous crisis due to less pronounced demand shocks and more stable logistics.

Hypotheses on the greater resilience of industry to the pandemic crisis

1. Different nature of the crisis:

   The 2008-2009 financial crisis was caused by a demand shock, while the 2020 pandemic crisis was accompanied by supply and demand shocks.

2. Asymmetric shocks:

   Some industries, such as pharmaceuticals, chemicals, and pulp and paper, got new growth opportunities in 2020.

3. Resistance to epidemiological restrictions:

   Manufacturing requires less face-to-face contact compared to the service sector.

4. Technological constraints and advantages:

   Stopping continuous production can be costly and irreversible, making manufacturing more resilient to crises.

Conclusion

The manufacturing industry has shown different levels of resilience to the 2008-2009 and 2020 crises. It was more resilient in the pandemic crisis compared to the financial crisis. This is due to the different nature of the crises and the greater resilience of manufacturing industries to epidemiological restrictions. In developed countries, manufacturing on average showed better resilience to the pandemic crisis than in developing countries.

Increased digitalisation and automation of manufacturing processes, as well as the development of supply chains and diversification of production, are recommended to further improve manufacturing industry resilience.