The line chart of the Eurozone purchasing managers' indices (below 50 = the majority of companies report a decline in activity) shows that manufacturing is more resilient to covid disruption

Europe's resilient manufacturers are recovering from viruses

Factories across Europe are bustling again, encouraging some industry bosses to invest in additional production as they stave off the surge in coronavirus infections that is casting a shadow over the continent's economic recovery.

Many manufacturers have been quick to adapt manufacturing facilities to protect their workers after the pandemic, and in recent months they have benefited from rising demand driven by a rebound in exports, particularly in the resurgent Chinese market.

"The coronavirus shock was both a supply and a demand shock," said Jörg Zeuner, chief economist at Union Investment, the German fund manager worth EUR 370 billion. "It is important to understand, however, that many of the supply restrictions were lifted during the summer, so production was able to bring production back to where it was before the locks."

The resilience of the manufacturing sector has supported economic recovery in countries with larger industrial sectors. By August, German factory orders had almost reached pre-pandemic levels, while Italian industrial production was back at the previous year's level.

"We will likely see Italy outperform Spain, but also France because it has a larger manufacturing sector," said Nadia Gharbi, economist at Pictet Wealth Management. Italy generates almost 17 percent of its income from manufacturing – less than 21 percent in Germany, but more than 12 percent in France and 11 percent in Spain, according to the OECD.

"Italy works best when it's under pressure. If we don't move, we're dead," said Sergio Dompé, head of the Milan-based biotechnology company Dompé, which had sales of around 430 million euros last year. "The system has been shown to be robust, and the fact that most businesses are small and medium-sized actually helped navigate Covid-19."

Industry leaders fear the surge in coronavirus infections will push governments to reinstate national bans. © Francesca Volpi / Bloomberg

Economists say manufacturers are likely to remain stable for at least a few more months, aided by an order backlog and the recent recovery in world trade.

On Friday, IHS Markit will release its latest survey of purchasing managers, which is expected to show that European manufacturing activity will continue to surge in October, even as the slowdown in services deepens.

"The problem with the service sector compared to manufacturing is that it can be very directly affected by the epidemic and mobility restrictions – and if its products don't find a buyer right away, they can simply be lost," he told Gregorio Izquierdo , Chief Economist of the Spanish CEOE Business Federation. "In contrast, manufacturing can build inventory and sell to distant markets."

The line graph of industrial production (indices, 2019 = 100) showing Italian industrial production is already back to pre-pandemic levels

The automotive industry is an integral part of European manufacturing. While European auto sales have still declined 29 percent since the start of the year, they have rebounded strongly – driven by government subsidies for electric and hybrid vehicles in France and Germany – and grew for the first time since the start of the pandemic in September.

Ola Kallenius, CEO of Daimler, said the Mercedes-Benz vehicle maker has also seen a "remarkable recovery in China," where its sales have grown double-digit for four months in a row. "It's almost too good to be true," he said. "They made a V-shaped recovery in the Chinese economy."

Companies in other sectors are benefiting from increasing sales in China such as the Gea Group, the German manufacturer of machines that produce half of the world's beer, a quarter of the milk processed and a third of all instant coffee.

"The strongest recovery now is definitely in China, where the virus is practically gone, and I would say people are back to normal there, which is driving demand," said Stefan Klebert, managing director of Gea, which has five Chinese factories.

The Düsseldorf-based company benefits from the resilience of its customers in the food and beverage industry and is advancing plans to build a new plant in Poland. "One customer may be affected by fewer deliveries to fast food companies, while another may benefit from higher sales of frozen pizzas to supermarkets," said Klebert. "It all balances out."

In other sectors, a recovery in domestic demand has offset lower exports such as the Italian ceramics industry. "Companies with strong online and wholesale channels are doing well, thanks in particular to the recovery of the Italian domestic market," said Giovanni Savorani, Managing Director of Gigacer and President of the National Association of Ceramic Manufacturers.

However, the overall performance of European manufacturing is mixed. Some sectors still have problems. Aerospace, for example, has been hit by turbulence in the pandemic-hit aviation industry. Airbus plans to cut 15,000 jobs while cutting production by 40 percent. Some of its suppliers are struggling to survive.

Similarly, Italian suppliers to the fashion industry, which have recorded steady annual growth of 2-3 percent over the past five years, have suddenly lost more than 40 percent of their orders this year. Manufacturers of clothing, leather, shoes and accessories, including large Italian fashion houses such as Prada and Armani, will have to accept a loss of sales of EUR 27 billion this year and EUR 12 billion next year, according to an analysis by Cerved.

Companies in historic fashion districts like Lake Como, home of major Italian silk and textile manufacturers, and the Marche region, home to brands like Tod & # 39; s and Poltrona Frau, fear the Covid crisis will be their last straw becomes.

What worries industry leaders even more, however, is the possibility that the recent surge in coronavirus infections is forcing governments to reinstate strict national bans.

"Many companies, including healthy ones, would not survive a second lockdown," said Klaus Fischer, owner of the Fischer Group, a manufacturer of wall plugs and car parts near Stuttgart. "I hope the politicians will be smart enough to do everything they can to prevent a second lockdown."

Additional reporting from Joe Miller in Frankfurt and Daniel Dombey in Madrid