Factories Fire Up in Europe to Pull Economy Back From the Abyss

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Factories Fire Up in Europe to Pull Economy Back From the Abyss
Credit: © Reuters.

(Bloomberg) --

Volkswagen (DE: VOWG_p ) AG is rebooting plants, Airbus SE is up and running and U.K. builders will soon be erecting homes again as Europe starts returning to work after coronavirus shutdowns plunged the region into its worst economic slump in living memory.

Factory doors are reopening after nations from Denmark to Germany began easing restrictions on public life, with Italy, France and Spain to follow. But it won’t be a sudden return to business as usual. Companies will have to implement social distancing and hygiene measures to keep workers safe, after the pandemic claimed more than 110,000 lives in the region.

The restart is crucial to pull the European economy out of a tailspin that’s forced governments to pledge hundreds of billions of euros to keep companies afloat. Measures of private-sector business activity plummeted to an all-time low in April, with record job cuts. Even in Germany, the nation that may weather the crisis best, business sentiment is “catastrophic,” according to the Ifo research institute.

But while shutting down factories is relatively easy, ramping them up again is more complicated because even small kinks in the supply chain can cause major disruptions, said Michael Groemling, an analyst at the Cologne-based German Economic Institute.

“What complicates matters even more is that no one knows for sure how demand in the key markets in Europe and the U.S. will shape up in the coming months,” Groemling said by phone.

PSA Group, for one, isn’t saying when it will reopen European factories. The maker of Peugeot, Citroen and Opel automobiles said there’s no point in building up inventories while sales are dormant. “It’s important to have dealership and sales activity before we push the button,” Chief Financial Officer Philippe de Rovira told analysts.

While the extent of the reboot differs by country (Portugal, for example, has allowed most factories to keep running throughout the crisis), it’s happening gradually. Moving too quickly, or carelessly, risks contributing to a second wave of infections that would turn the recovery effort on its head. And some segments of the economy -- think bars and restaurants, air travel or movie-going -- will probably remain disrupted for some time.

Read more: Europe Grapples With Lockdowns as Cases Drop and Economies Reel

Europe’s car industry, which accounts for about 14 million jobs across the region, is eager to get back to work, even though it’s unclear whether buyers will return to showrooms once lockdowns are lifted.

Fiat Chrysler Automobiles NV, the Italian-American carmaker, will restart production at its Sevel light van plant in southern Italy and resume some operations at other factories across the country on Monday. Ferrari NV (NYSE: RACE ) plans to reopen its Maranello and Modena factories in northern Italy on May 4.

Volkswagen, the world’s largest automaker, resumed production of its new ID.3 electric car at a factory in Zwickau, Germany, on Thursday, saying it expects to start European deliveries of the vehicle this summer as planned.

Renault SA (PA: RENA ) began a gradual ramp-up in France last week, starting with three engine and parts factories and as little as a quarter of employees. It’s providing safety measures such as protective gear, temperature monitoring and extra cleaning. The company has already reopened plants in countries including Spain, Portugal, Morocco and Russia.

Most carmakers aren’t revving up all their factories at once, and those that restore output are expected to run assembly lines at slower rates until demand climbs back toward pre-crisis levels.

Keep Building

The U.K.’s largest homebuilders have drawn up plans to resume work starting this week after implementing a widespread shutdown last month in response to the outbreak. Persimmon (LON: PSN ) Plc will begin a phased restart from April 27 and Taylor Wimpey (LON: TW ) Plc plans to resume work in May after drafting new guidelines for workers on how to maintain social distancing during construction work.

Construction materials companies including CRH (LON: CRH ) Plc and Marshalls Plc have both furloughed workers to cope with the slowdown, but have continued to supply some customers and will gradually ramp up to meet demand.

Commercial projects including the redevelopment of the former Whiteleys shopping mall in London managed to avoid shutdowns because they could maintain social distancing with just heavy machinery and few staff on site. Projects closer to completion, like the city’s Twenty Two Bishopsgate skyscraper, had been forced to temporarily suspend work because it’s harder to keep workers apart when fitting out an almost completed office building.

In Spain, one of the countries in Europe hardest hit by the virus, most large developers, including Aedas Homes, have resumed construction after the government imposed a two-week lockdown at the end of March.

Planes, Trains, Ships

Planemakers that were in a race to increase production before the crisis are now faced with a plunge in demand for their aircraft, with over 60% of the world’s fleet grounded and airlines delaying orders.

European manufacturer Airbus, which earlier this month cut its output target for the year and warned it may have to eliminate jobs, adjusted or halted production at sites in the U.K., France, Spain and Germany in March and April to account for the drop in demand and implement health and safety measures.

Airbus has since resumed its European manufacturing, albeit at a lower rate. It divided up workers in red and blue teams who use different routes to enter and exit buildings, turned cafeterias into takeaway restaurants and introduced temperature screenings. Its assembly sites in Canada and the U.S. are still on hold.

Spanish train-maker Construcciones y Auxiliar de Ferrocarriles SA began operating again on April 20 after downing tools for nearly five weeks. The company reached an agreement with workers to make up the lost hours of production by the first quarter of 2021. It’s carrying out strict protocols at its three main plants in Spain with 15 staggered shifts starting at 5.45 a.m., temperature checks of workers and the use of gloves, masks and disinfectants.

Shipbuilder Fincantieri SpA resumed part of its production on April 20 at its eight Italian shipyards, but with only 10% of staff working on average, a spokesman said. The company plans to gradually add more workers starting May 4 to reach full capacity in early June.

Production restarts are set to lift energy consumption, which stumbled because of the restrictions to contain the virus. Those curbs cut European electricity demand to the lowest in almost 12 years, pushing prices in a few markets below zero at some times of the day. Italian oil major Eni SpA cut its production forecast for the year on Friday after the benchmark U.S. oil contract turned negative for the first time ever.

With factories working again, utilities including Germany’s RWE AG (DE: RWEG ), Italy’s Enel (MI: ENEI ) SpA and France’s Electricite de France SA (PA: EDF ) will restore generation capacity that’s been offline.

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