Manufacturing vs Service

Perhaps paradoxically it is the recession (and its end) that created the climate for such positive figures – the weak pound and moves to restock as global demand returns – rather than any sort of added robustness of the manufacturing sector itself.

The reality is that service and industrial economies both contracted during the past two years. As global and domestic demand fell, the major manufacturing countries were hit hard (Japan down 8.6% and Taiwan down 14.5%). While closer to home, a comparison between the service-based UK (down 6%) and Germany’s industrial economy (down 6.7%) reveals a broadly similar contraction rate.

What’s differentiated recovery rates to date is not so much whether an economy is manufacturing or service-based, but rather individual country responses to the downturn. In Germany, for example, the creation of a ‘bad bank’ would effectively ring fence bad assets for a long term management approach, enabling credit markets to operate.

In the UK the dominance of the finance sector resulted in a longer, but some people would argue shallower, downturn. However, the continuing dysfunction within the banking sector has restricted the access to credit – resulting in high levels of default and failure across business sectors. As a result, construction has been one of the hardest hit industries in the UK, down 14.1% at the peak of the recession, while manufacturing (down 13.8%) and utilities (down 13.2%) have similarly suffered.

In reality, while service and production-based economies do exhibit a very particular set of characteristics, it is way too simplistic to claim that these have resulted in one country emerging from recession before another has. To do so with any degree of certainty, one must take a broad approach and analyse the host of socio, political, economic and fiscal factors at play to achieve a true picture.