Letter IEDI n. 1225—Weakening of the high-technology industry
In the first half of 2023, the manufacturing industry registered one more period of decline in physical production. It registered -1.3% compared to Jan–Jun'22, doing worse than the industry as a whole (-0.3%), which includes mining, and falling well short of its own result in the 2nd half of 2022 (+0.7%).
Today's Letter IEDI updates the Institute's monitoring of the evolution of manufacturing according to the technology intensity of its branches. Following the OECD methodology, we grouped the sector into four ranges: high, medium-high, medium and medium-low technology.
It is worth noting that medium-low is the only group with branches of the extractive industry, which are analyzed separately at the beginning of this study. The last section brings in detail the evolution of the manufacturing branches that are part of this category. Another observation is that there are no industrial branches in the low-tech group, which congregates services and agricultural activities.
For the manufacturing industry as a whole, the decrease in Jan–Jun'23 was accompanied by a deterioration in Q2'23 (-1.5%) in relation to the previous quarter (-1.0%) in the year-on-year comparison. This was driven by the categories of higher technology intensity, as the medium technology industry attenuated its decline and the medium-low was the only one whose production rose in the period.
The high-tech industry registered an expansion of 2.4% in Jan–Jun'23, but due to Q1'23 only, as it contracted 1.7% in Q2'23. This change in sign came from electronics, whose drop from one quarter to another doubled (-6.5% and -13.2%, respectively). The main negative influence was production of radio, TV and communication equipment.
In 2023, the pharmaceutical industry has made an important positive contribution to the dynamism of the high-technology range. Its output growth reached 11.1% in the 1st half'23, a situation radically opposite to that of the 1st half'22 (-10.8%). In Q2'23, despite a significant deceleration, it managed to remain in the black: 3.8% versus Q2'22.
The medium-high technology industry, in turn, suffered a 6.0% decrease in Jan–Jun'23, with an even greater contraction in Q2'23 (-7.6%). All five branches were in the red in both the first and second quarters of the year, and in almost all of them there was some deterioration, especially in the branches of capital goods, both mechanical (-8.2%) and electrical (-14.7%), which together with the chemical industry (-9.3%) had the worst results in Q2'23.
As for the groups of lower technology intensity, there were more favorable signs. The medium technology industry, although not growing, reduced its pace of decline in Q2'23 (-1.8%) to the lowest level of the last six quarters. It should be emphasized, however, that medium technology has not grown since Q3'21.
The branch behind this relative improvement was metallurgy, which managed to greatly mitigate its losses, from -4.2% in Q1'23 to -1.8% in Q2'23. Non-metallic minerals, miscellaneous goods and maintenance, repair and installation of machinery and equipment also had less intense falls. The only branch to worsen was rubber and plastic, from +3.6% to 0%, respectively.
Finally, output of the medium-low technology intensity manufacturing industry increased by 1.4% in Q2'23, that is, well above its Q1'23 result, which had been of only 0.4%. As a result, the performance of the last months of the first half of the year led the range to register +0.9% in Jan–Jun'23, the same result obtained in Jan–Jun'22.
The stronger expansion is explained by the acceleration of the food, beverages and tobacco industry, which went from 1.4% in Q1'23 to 2.9% in Q2'23, and oil products, whose 4.9% increase in Q2'23 was the most significant among the branches of the medium-low group.