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The auto sector may be key to recovery in manufacturing sector in Japan and Germany

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Manufacturing in Asia and Europe, the two largest advanced economies, is taking a big hit, according to separate Japanese and German data released on February 21st.Some argue that the importance of the car industry cannot be ignored in the recovery phase.

According to the Japan times , a private survey released on Thursday shows that due to domestic and export orders fell, the factory production and manufacturing activity contracted in February in Japan, Markit/the nikkei manufacturing purchasing managers' index (PMI) from 50.3 in January dropped to 48.5 in February, the first time since August 2016 fell to below 50.

The survey also showed business confidence deteriorating for the first time in more than six years, pointing to mounting losses from global trade frictions to Asia's export-dependent economies and global manufacturing.

Japan's economy rebounded in the fourth quarter of last year as business and consumer spending recovered from a natural disaster in the third quarter, but trade friction and a planned rise in the consumption tax will also curb growth this year.

On the same day, German data showed that the preliminary manufacturing PMI fell from 49.7 in January to 47.6 in February, a 74-month low and the second consecutive month below 50.

In addition, the German manufacturing industry was hit by the European Union's new emissions standard, WLTP, and many German car companies temporarily stopped production in the third quarter of last year, resulting in the decline of output in the auto industry and thus dragging down the economy.Europe's GDP grew 1.4 percent in 2018, its a sharp slowdown compared to the 2.2 percent growth in 2017.

Bloomberg reports that beside Japan and Germany, the pain of the decline in trade is being felt around the world.

Shipping giant Maersk said on Thursday that profits would be lower than expected, and chief executive Soren Skou said the outlook for this year was even bleaker.Ubs also put its forecast for global growth at its lowest level in a decade.

Carsten Brzeski, ING chief economist, told bloomberg TV: "uncertainty is the buzzword for central Banks...Perhaps, if all these external risks are benign, we could see another move by the fed and another attempt by the ECB to normalise .But the likelihood of a benign outlook for all of these risks is low today.

ZeroHedge said a key factor in the global manufacturing recovery is likely to be the recovery of global auto industry, among the factors that put pressure on the industry like emissions standards and trade agreements appearing to be temporary, while the industrial transformation is more structural, and the balance between the two will be clarified this year.