Globally, the COVID-19 pandemic shaped economic developments during the business year 2020/21. The major economies were confronted with sharp economic declines, particularly in the business year’s first quarter, before rebounding as time went on. While the recovery took hold at different rates across different regions, it withstood subsequent waves of the COVID-19 pandemic during which infection rates were significantly higher than at the outset. In particular, the manufacturing industry rebounded well worldwide, whereas many areas of the service industry remained under pressure throughout the reporting period due to the pandemic.
The global search for vaccines against the COVID-19 virus came to fruition in the third quarter of the business year 2020/21, and several pharmaceutical groups developed effective vaccines. Progress in the ensuing campaign to immunize populations proceeded differentially across regions. Along with adaptation to the social rules adopted earlier to contain the pandemic, however, the vaccination drive substantially boosted economic sentiment across wide areas toward the end of the business year. The Global Composite PMI™ rose to its highest level in six years during this phase.
The first quarter of the business year 2020/21 delivered an economic shock that affected large swaths of Europe. Almost all countries imposed state-mandated lockdowns in reaction to the onset of COVID-19, restricting public life in order to contain the pandemic. Initially, these measures did indeed make it possible to control infection rates fairly well and enabled some areas to return to a semblance of “normalcy” over the Northern summer, subject to certain restrictions. A strong rebound in private consumption ensued immediately, followed a little while later by a substantial recovery in industrial production.
After the Northern summer, the number of infections rose dramatically yet again in almost all European countries. By the end of the reporting period, this had resulted in a second wave that could no longer be tamped down to the levels recorded over the summer. Most countries reacted yet again by imposing restrictions on social life as well as by shutting down large swaths of commerce and the leisure industry. In contrast to the first lockdown, however, the new restrictions did not encompass the manufacturing sector and the construction industry, with the result that the summer’s uptrend in both areas solidified significantly over the course of the business year 2020/21.
Given the serious economic fallout from the state-mandated restrictions, most governments quickly enacted support programs to forestall a tidal wave of bankruptcies. The European Central Bank (ECB) responded rapidly as well and, among other things, set up a Pandemic Asset Purchase Program (PEPP) that was expanded to the enormous amount of EUR 1.85 trillion during the company’s final business quarter. This quickly gave European member states financial leeway despite their growing sovereign debt. The European Union’s EUR 750 billion Recovery Fund was put in place to boost investments.
In the EU, COVID-19 vaccines were not licensed until the end of the third quarter of the business year 2020/21. The campaign to immunize people using these vaccinations started in the last business quarter. There were many setbacks. Despite the delays and organizational difficulties during the ramp-up phase, on the whole the vaccination drive did substantially improve prevailing sentiment—both among the public and economically speaking.
The voestalpine Group, which generates approximately two-thirds of its revenue in Europe, had to contend with massive business losses in the first quarter of the business year 2020/21. The first lockdown in Europe led to cuts in many areas and even to weeks-long production shutdowns as, for example, in the European automotive industry. In this environment, voestalpine availed itself of governmental support programs; of these, the short time work program turned out to be one of the most effective.
The economy consolidated rapidly at the start of the Northern summer, and almost all markets of the voestalpine Group rebounded during the second business quarter. Demand for voestalpine’s products continued to rise in the second half of the business year 2020/21 despite new lockdowns in many markets, and it accelerated yet further toward the end of the reporting period due to the marked increase in people’s savings and the considerable improvement in people’s mood.
Yet these positive developments did not touch the aerospace industry and the oil and natural gas sectors. The latter did not show any signs of recovering until the company’s fourth business quarter.
In North America, specifically, the United States, the COVID-19 pandemic triggered an unprecedented economic recession in the first quarter of the business year 2020/21. By contrast to Europe, however, no nationwide lockdown was put in place. In turn, this kept economic sentiment and momentum a bit more afloat than in Europe.
Toward the end of the first business quarter, consumer spending recovered quite quickly and dynamics accelerated further as the year wore on. But the general momentum fluctuated over the reporting period as a result of both the rates of infection and regionally divergent actions aimed at fighting the pandemic. The labor market also began to rebound quite early in the business year and followed a steady, positive trajectory despite seasonal volatility. Over all, the service sector took a much greater economic hit from the COVID-19 pandemic than the productive sector, which saw substantially positive development during this period. The construction industry’s trajectory was particularly robust.
The successful development of COVID-19 vaccines by pharmaceutical companies based in the United States as well as the U.S.’s rapid and extremely efficient immunization campaign boosted economic sentiment in the country yet further toward the end of the business year.
The Federal Reserve (Fed) switched to crisis mode early on by enacting a massive easing of monetary policy and putting in place emergency lending programs. In addition, it introduced the new pillars of its strategy which, besides inflation and stability targets, also puts the development of the labor market front and center for the very first time.
At the political level, the struggle to deal with the economic crisis initially took place in the context of the presidential election campaign. Compared with the European crisis intervention programs, in North America state support for the economy remained rather modest. After winning both the presidential election and the majority in both houses of Congress, however, the Democrats presented the historic, USD 1.9 trillion “American Rescue Plan.” It will be accompanied by the longer-term “American Jobs Plan,” a USD 2.3 trillion infrastructure program that aims to fight unemployment.
This hodgepodge of successful vaccination drive, the Fed’s supportive monetary policy, massive governmental support programs as well as (just as in Europe) consumers’ substantially higher savings actually got things moving. All of it clearly boosted economic sentiment yet further in the fourth quarter of the business year 2020/21, but it also led for the first time in years to a debate on rising inflation expectations.
The environment sketched out above affected the voestalpine Group’s North American companies differently depending on the market segment.
Just as in Europe, the U.S. automotive industry had shut down production completely for several weeks during the business year’s first quarter, but it rapidly found its footing again as the year wore on and met with very good demand toward the end of the reporting period. Neither aerospace nor the oil and natural gas industry exhibited any signs of recovering during this time. Those voestalpine Group companies that focus on consumer and capital goods performed solidly throughout the business year 2020/21. The voestalpine Group benefited from the excellent economic environment of the U.S. construction industry especially with respect to storage technology.
The COVID-19 pandemic hit Brazil, the most relevant country on the South American continent for the voestalpine Group, a bit later than elsewhere. As a result, the country’s economic development on the whole and capacity utilization at voestalpine’s facilities in Brazil were still good at the start of the reporting period. But the economic meltdown occurred here, too, in the course of the first business quarter. In managing the pandemic, the Brazilian government has avoided placing far-reaching governmental restrictions on the economy. Support measures that it enacted for the benefit of the country’s population helped to mitigate the recession. The second quarter of the business year 2020/21 saw a noticeable economic rebound, with the momentum continuing to accelerate through the end of the reporting period. The government’s response to the renewed, sharp increase in the number of COVID-19 infections during this quarter was limited to regional restrictions yet again. The economic momentum remained solid during the subsequent business quarter and did not flatten until the end of the business year’s fourth quarter when industrial companies shut down production in part owing to very high numbers of infections.
The Brazilian facilities of the voestalpine Group were differently affected by the pandemic’s ramifications and initially had to adjust their production rates to the weakened demand. Following the Southern summer, however, order levels recovered and gradually improved through the end of the reporting period. Due to the extreme increase in the rates of infection during the fourth quarter of the business year 2020/21, however, individual customers curtailed production and limited logistics.
China, the first country in Asia to be exposed to COVID-19, was already affected during the final quarter of the business year 2019/20. The country’s political culture made it possible to bring the pandemic under control quite quickly using a rigorous approach, including massive restrictions on people’s individual liberties. Following several weeks of complete lockdowns of vast regions, the country started a coordinated effort even before the end of the business year 2020/21 to ramp up economic activity. China did not see any new, isolated clusters of COVID-19 infections until the end of the reporting period. They, too, were quickly brought under control and did not hamper the country’s economic development.
Moreover, China’s central government intensified state-sponsored capital spending programs in both infrastructure and real estate; this succeeded soon in returning the economy to a growth trajectory, which industry and private consumers alike immediately embraced. In contrast to other large economic regions, the country’s economic momentum was not contingent on the availability of effective vaccines, although China itself had already developed an effective COVID-19 vaccine early on. Against this backdrop, the country succeeded in generating positive economic growth of more than 2% during the calendar year 2020 that plunged the rest of the world into a deep recession.
Given these parameters, voestalpine’s entities in China achieved production levels at the start of the business year 2020/21 equivalent to those prior to the outbreak of the COVID-19 pandemic and succeeded in generating further growth throughout the reporting period.
The fact that the Chinese steel industry produced record levels of crude steel yet again was a knock-on effect of the country’s comprehensive construction and infrastructure program. As a result, China became the world’s largest consumer of iron ore by far, thus driving demand for it in the world market. In turn, this triggered a ferocious increase in iron ore prices during the business year 2020/21 irrespective of the strong, worldwide recession that saw temporary shutdowns of steel production capacities in both Europe and North America. This effect was intensified by the fear that the pandemic might lead to delivery shortfalls from iron ore producers such as Brazil. Following a short period during which global iron ore prices eased a bit during the Northern summer, prices tightened yet again over the business year’s second half as production capacities were ramped up anew in Europe’s and North America’s steel industry, hitting a ten-year record high toward the end of the reporting period.