Letter IEDI n. 1027–COVID-19 effects on the industry by technology intensity
The COVID-19 pandemic strongly impacted the industry by making access to parts and components—especially imported ones—difficult, by requiring substantial changes in the functioning of production lines to meet the need for social distancing and isolation, and by depressing aggregate demand, reducing the size of its markets.
Although the problems in Brazil became much worse in March, the most adverse effects were felt in Q2/20, when industrial production decreased 19.4% compared to the same period last year. The figure for manufacturing was even more serious: -21.8% in the same comparison. In the months of May and June, some reaction was registered, but it was very insufficient to compensate for the previous losses.
As a result, the COVID-induced Brazilian industry shrinking in the first half of 2020 far outweighs the setbacks of the serious 2015–2016 crisis. In Jan–Jun/20, the general industry fell 10.9% and manufacturing dropped 11.9%. And it is worth remembering that performance had already been meager in 2019: -1.1% and +0.2% only, respectively. That is, the crises accumulate and the years of recovery are few and weak.
In this Letter IEDI, 2020 industrial performance is detailed according to four technology intensity ranges, following the most current version of the OECD classification.
The high, medium-high and medium intensity categories include manufacturing branches only, while medium-low technology covers all mineral extraction activities and some manufacturing sectors. The industry does not have branches in the low technology intensity range, which consists of services and agricultural activities.
The main highlights are the following:
The high-tech industry was not the worst hit by the pandemic, registering -9.6% in the 1st half/20, but its falls overlap, since it was also in the red in the first half of last year (-6.3%). Almost all of its branches recorded significant decreases, especially aircraft production, with -49.7% in Jan–Jun/20. The exception was the pharmaceutical industry (+2%), which is not surprising given the health nature of the current crisis.
The medium-high technology group led the losses, with a rate of -23.8% in the 1st half/20 versus the same period of the previous year. Its decline, ongoing since Q3/19, was greatly worsened by COVID-19, which led to a 42.8% loss in Q2/20. Much of this was due to the auto industry (-73.5% in Q2/20), but also to the production of capital goods and other transport equipment.
In the medium technology intensity industry, output declined 14.6% in the first half of 2020, driven by the result of the 2nd quarter of the year (-25.7%). Decisive branches for this performance were metallurgy, non-metallic minerals and rubber and plastic.
In the case of medium-low technology, with regard to manufacturing, losses were much lower than those of the other ranges: only -4.6% in the first half of 2020. The 2nd quarter also brought deterioration, but at a less serious level than to the others: -9.7%. This performance is associated with the resilience of some of its most important branches, which produce essential goods, such as food, beverages and tobacco, with an expansion of +0.5% in Jan–Jun/20 and +1% in Q2/20 only.