Letter IEDI n. 852–Manufacturing Industry in early 2018: most technologically intensive branches in the lead
The first quarter of 2018 brought a sluggish pace to industrial recovery, halting last year's sequence of stronger-than-expected results. Considering only the manufacturing industry, the picture was no different. In the series with seasonal adjustment, in early 2018 manufacturing went back to the red (-0.1% versus Q4/17). In comparison to the same quarter the previous year, production decelerated from +5.7% in Q4/17 to +3.8% in Q1/18.
This Letter IEDI analyzes the particularities of the performance of the manufacturing industry from the classification of its different branches into four bands of technological intensity according to the methodology developed by the OECD. The main highlights are the following:
- The high-intensity category grew 13% in the initial quarter of 2018. This performance allowed the range to record a 4.6% growth rate in twelve months, noting that up to the third quarter of 2017 the variation at this comparison basis remained negative. The pharmaceutical industry showed good momentum at the start of 2018, but the highlight was electronics, where the manufacturing of audio, video and communication equipment expanded by 31.8% in the first quarter (Q1), the highest rate among all branches.
- The medium-high intensity segment, in turn, produced 8.2% more in the comparison between Q1/ 2018 and the same quarter of the previous year. Thus, this range grew 6.9% in twelve months, the highest rate among the four categories on this comparative basis, since it has been growing longer than the high-intensity range. The automotive industry continues to capitalize on the expansion, obtaining a strong increase in all these bases of comparison. In the first quarter it grew 19.9%. The manufacture of machinery and mechanical (or unspecified in other activities) equipment also managed to increase its physical production in the three comparisons. On the other hand, chemicals had falls in the quarter, expressing difficulties in the production of intermediate goods.
- The group of medium-low branches was the only one to contract in January-March in relation to the same period of 2017: -0.2%. In twelve months, the segment remained stable. The declines are largely due to falls in the manufacturing of refined petroleum, alcohol and related products, which dropped 6.0% in the first quarter. Another major sector of this range, the production of metallic goods, including steel, grew in the comparative bases considered (in the first quarter, 5.5%), but without compensating for the contractions of not only that branch, but also of the manufacture of non-metallic minerals.
- Finally, the low-intensity segment achieved a 2.7% increase in the first three months of the year. In twelve months, the increase in physical production was 2.6%. The branches that shrank in the first quarter were those whose productive processes are labor intensive: "manufactures unspecified in other branches and recycled", and the grouping of textiles, clothing, leather and footwear. The segments most intensive in natural resources grew in this comparison: food, beverages and tobacco, the most significant branch of the manufacturing industry, grew by 2.8%; wood, pulp and paper, and printing and the like 7.3%.
In summary, the manufacturing industry has been expanding, especially in the durable goods' sectors most affected by the recent crisis, such as automobiles and TV sets, which have pulled the medium-high and high-tech industries. However, the challenge of keeping the good momentum and returning to the production levels achieved before the crisis is still great.
In addition, the declines in refined petroleum, coke and related industries (medium-low range), chemicals, which supply relevant intermediate goods (medium-high industry), textiles, clothing, leather and footwear (low intensity category) and also the manufacture of medical, optical and precision instruments (high tech) make clear that, so far, industrial recovery is not sufficiently widespread for a more consistent recovery to materialize.