Migrants left Guangzhou, China, after the factory where they worked closed because of weak demand.

By NELSON D.SCHWARTZ


Since it was founded by his greatgrandfather in 1880, Carl Martin Welcker’s company in Cologne, Germany, has mirrored the fortunes of manufacturing, not just in Europe but around the world.

That is still true today. In a pattern familiar to industrial businesses in Europe, Asia and the United States, Mr.Welcker says his company, Schutte, which makes the machines that churn out 80 percent of the world’s spark plugs, is facing “a tragedy.”

Orders are down 50 percent from a year ago, and Mr.Welcker is cutting costs and contemplating layoffs to prevent Schutte from falling into debt.

That manufacturing is in decline is hardly surprising, but the depth and speed of the plunge are striking and, most worrisome for economists, a selfreinforcing trend not unlike the cascading bust that led to the Great Depression.

In Europe, for example, where manufacturing accounts for nearly a fifth of gross domestic product, industrial production is down 12 percent from a year ago. In Brazil, it has fallen 15 percent; in Taiwan, a staggering 43 percent.

Even in China, which has become the workshop of the world, production growth has slowed, with exports falling more than 25 percent and millions of factory workers being laid off.

In the United States, industrial output fell 11 percent in February from a year ago, according to statistics released March 16 by the Federal Reserve.

“Manufacturing has fallen off the cliff, and it’s certainly the biggest decline since the Second World War,” said Dirk Schumacher, senior European economist with Goldman Sachs in Frankfurt.

The pattern of manufacturing and trade ominously recalls how the financial crisis of 1929 grew into the Great Depression: tightening credit and consumer fear reduced demand for manufactured goods in one country after another, creating a downward spiral that reduced global trade.

“Plunging manufacturing suggests that as bad as things were in the fourth quarter, they are at least as bad now,” said Robert J.Barbera, chief economist at ITG, a New York research and trading business.“This is a classic adverse feedback loop. It won’t quickly correct itself.”

That means more workers can expect to lose their jobs around the world in coming months as manufacturers continue to cut production, especially as global trade contracts.

In fact, trade is shrinking even faster than production. Germany’s exports are down 20 percent from a year ago, Japan’s have plunged 46 percent, and in the United States, exports fell at an annualized rate of 23.6 percent in the fourth quarter of 2008.

Mr.Welcker says he has never seen anything like it. For parallels, he has to hark back to the Great Depression and World War II, when Schutte’s factory was destroyed. After focusing on Germany and Europe in the decades after the war, Schutte thrived recently as globalization opened new markets in Eastern Europe and Asia. In the last five years, Schutte’s sales soared to about 100 million euros ($131 million) from 58 million.

While manufacturing equals about 14 percent of gross domestic product in the United States, it totals 18 percent worldwide, and accounts for 33 percent of G.D.P. in China, according to the World Bank. That means that China, Brazil, India and other fast-growing emerging market countries that have escaped the worst of the fallout from the credit crisis will increasingly suffer, dragging down demand in more advanced Western economies even as government- led stimulus packages kick in.

Although the problems of manufacturers supplying the auto industry and other so-called big iron manufacturers of products like locomotives, jet engines and power turbines have gotten the most attention, makers of a variety of other products, including handicrafts, clothes and jewelry, are suffering too.

India’s manufacturing sector, which accounts for about 16 percent of G.D.P., recently recorded its first quarterly production decline in more than a decade.

Since last April, handicraft exports have fallen by 55 percent to $1.
35 billion, and textile makers estimate they have slashed half a million jobs. Banks, meanwhile, are restructuring loans for diamond makers and polishers.

And despite tax cuts and a $64 million stimulus package announced in February, Indian textile makers are pushing for more government help.

“We’re competing with countries like Bangladesh, where wages are lower,” said Rakesh Vaid, the chairman of Usha Fabs, a Delhi textile manufacturer.“We’re competing with China where the currency is well managed, and Vietnam where the industry is getting strong support from the government.”