Letter IEDI n. 887–The growing manufacturing deficit by technological intensity
The trade balance of the manufacturing industry is moving towards the past, going back to levels of deficits that are increasingly similar to those that prevailed before the industrial crisis of 2014-2016. In the period from January to September 2018, the negative balance reached US$ 20.3 billion, the worst result since 2015 (US$ 30 billion) and ten times greater than the deficit registered in the same period of 2017.
Although the downward trend has been happening since mid last year, the third quarter of 2018 was a period of great intensification. In 2018, more than half of the manufacturing's deficit was generated between July and September, making it the worst quarter for the sector's trade balance since Q1 2015. Much of this, as we shall see next, was due to specific factors associated with the oil sector, as the purchase of platforms and the rise in international prices.
After registering a decline of 2.6% in the second quarter of 2018 in relation to the same period of the previous year, exports of manufactured goods changed only +0.4% in July–September, implying virtual stability in the third quarter of the year. This aggregate performance, however, hides the fact that the vast majority of sectors, when looked at by technological intensity, have actually been in the red.
The only exception was the medium-low intensity range, whose exports grew 23.3% compared to Q3 2017. This is where the activities of the oil sector are grouped, and they had a great influence on the industrial trade balance in this period. Foreign sales of coal, refined petroleum products and nuclear fuel increased by 99.7% year-on-year in July-September 2018. As for shipbuilding and ship maintenance products, they registered a 181.5% increase in the same period, reflecting sales of oil platforms that are of a purely accounting nature.
The low and medium-high technological intensity ranges showed, for the second consecutive quarter, a drop in exports: -10.4% and -3.0%, respectively, compared to Q3/17. In the first case due to the decrease in the foreign sales of the automobile industry and, to a lesser extent, chemical products, and machinery and mechanical equipment; in the second case as a consequence of the negative performance of textiles, leather and footwear, and the food industry. Thus, the medium-high category accumulated a -1% loss in January-September 2018 and the low technology range registered -3.9%. The only categories falling in the year so far.
The high technological intensity range also saw shipments decrease in the third quarter (-9.3% versus Q3/17), due to the aeronautics and aerospace industry and pharmaceuticals. However, as the first half of the year saw good results, performance in January–September 2018 remains positive: +4.1% compared to the same period of the previous year.
Imports of the manufacturing industry as a whole have been steadily progressing for seven consecutive quarters. In four of them, the pace of growth was intense, reaching double-digit variations. Now in Q3/18, the increase was 27.8% compared to the same period of the previous year. This trend of expansion is repeated in most groups of industrial sectors by technological intensity.
In the high technology industry, there has been four consecutive quarters of import expansion, with a rise of 3.7% in July-September 2018. In the medium-high range, foreign purchases have grown for five quarters, reaching +17.2% in Q3/18. In the first case, the main pressure comes from the pharmaceutical industry, while in the second case it arises from chemicals, machinery and mechanical equipment, and motor vehicles.
The highlight in Q3/18 is, however, the medium-low technological intensity category, with imports growing no less than 93.7% in relation to the same period of the previous year. This was largely due to, as mentioned earlier, the purchase of oil platforms, causing shipbuilding and ship maintenance imports to rise from US$ 18 million in Q3/17 to US $ 5.4 billion in Q3/18. Largely due to this, imports of medium-low technology products were the ones that grew the most in January-September 2018: +53.6% in relation to the same period of the previous year.
On the other hand, the low technology range was an exception, showing a decline in imports in Q3/18 (-0.9% versus the same period last year), thanks to lower external purchases of textiles, leather and shoes, which fell (-1.1%) for the first time since Q4/2016. Low-tech imports are the ones that least rose in the year to September 2018, reaching only +3.1%, due to the decrease in food, beverages and tobacco.