Leading industrial executives have sounded stark warnings that risks to the global economy are increasing, growth is slowing and that customers are growing more cautious.
While European and US industrial groups mostly delivered robust first-half results and maintained their guidance on their full-year earnings, confidence has dimmed as the manufacturing recovery shows signs of losing steam.
Emerson Electric Co, the US industrial conglomerate, gave one of the starkest corporate warnings yet in a regulatory filing last week:
“Emerson order growth remained solid ... but we have seen a definite weakening of general business activity in June and July,’’ the company said. “US and European economies have clearly slowed and entered a soft-patch and it remains unclear if they will improve much in the second half of the calendar year.’’
Joe Kaeser, chief financial officer of Siemens, said there had been a slowdown in investment by some of the conglormerate’s export-orientated customers in the Mittelstand, Germany’s industrial base of small and medium-sized companies.
“It’s not yet a structural economic change but as we’ve seen in the past a negative change of our customers’ investment behaviour can of course lead to a slowing of economic growth,” he said.
Industrial companies’ concerns span the debt problems in US and eurozone, a possible slowdown in China, the risk of overheating in other emerging markets and the effect of rising raw materials costs.
Volkswagen, Europe’s biggest carmaker by sales, cautioned that “volatility in interest and exchange-rate trends and commodities prices” would temper earnings growth, even as it boosted its guidance on its full-year earnings last week.
Kurt Bock, chief executive of BASF, the world’s largest chemical maker by sales, said the persistently high oil price was “having a negative impact on margins across our value chains and is leading to some customers being more cautious in their orders”.
The comments represent a departure from the optimism of a year ago, when corporate order books filled up rapidly as companies in emerging markets rushed to invest in capital goods to fuel the recovery.
“The true macro environment is one of uncertainty and challenge,” said Dave Anderson, chief financial officer of Honeywell, the US conglomerate. “I call it a grinding sub-par recovery,” although he noted that Honeywell continues to achieve “respectable” growth.
“The $64,000 question is how long the industrial economy can keep outperforming the broader economy,” he added.
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