Letter IEDI n. 930–The Manufacturing Industry by Technological Intensity: from Deceleration to Fall
After taking a clear downward trend in 2018, the industry once more accumulates two consecutive quarters of negative results. In the first three months of 2019, the situation worsened with the -2.2% drop over the same period last year. In manufacturing alone, the decline was -1.4%. April, as we saw this week, did not bring any relief: -3.9% against Apr/18.
This backward movement, as the IEDI has pointed out on other occasions, is quite widespread across sectors and regions, making it difficult to credit it to merely one-off and exceptional causes. What is missing are favorable conditions for industrial productivity and costs and, on the other hand, solid bases to dinamize demand and generate a consistent recovery process.
Until now, we did not know how this new recessive phase manifested across the different technological intensity categories. This Letter IEDI addresses this issue using the OECD methodology, which divides the manufacturing industry into four distinct bands: high, medium-high, medium-low and low technology intensity.
The main evidences of the study are summarized below:
• The high-tech category led the decline this year. After recording -1.5% in Q4/18, it plunged to -12.5% in Q1/19 compared to the same period of the previous year. This performance led to a -3.2% fall in twelve months, the worst performance among the four segments by technological intensity. At the origin of this setback is electronics (-13%), followed closely by the pharmaceutical industry (-10.6%). No branch of this category was able to grow in 2019.
• In the medium-high intensity industry, the figure was virtually stable in Q4/18 (+0.2%), but turned red in Q1/19: -1.6% versus the same period of the previous year. All of its components fell, with emphasis on machinery and mechanical equipment due to its intensity (-4.6% vs. Q1/18) and machines and electrical equipment and chemical products except pharmaceuticals for their duration (falling for two quarters). The auto industry, which had previously led the recovery of this group as well as the industry's as a whole, suffered a sharp slowdown. It had grown by more than 20% in consecutive quarters and now in Jan-Mar/19 it registered -0.8%.
• The medium-low intensity range was the only one growing in Q1/19: +1.4%, although it fell in Q4/18 (-0.6%). This category was an exception to the rule due to the production of coke, refined petroleum products and the like, which grew +4.2%, but also as a result of non-metallic minerals (+2.2%) and metallic products (-0.6%). The problem has been the rubber and plastic segment: -3.8% and -3.4% in Q4/18 and Q1/19, respectively.
• Finally, the low-tech industry did not fall as much, registering -1.2% in Q1/19. Here, the severity of the picture is due to the sequence of falls that already lasts four quarters, that is, a whole year. It is worse still in some of its branches, as in textiles, leather and shoes, which have been in negative territory since Jan-Mar/18. Food and beverages had also fallen for several quarters, but at least managed to stabilize (0%) in early 2019. Wood, pulp and paper, in turn, was the category that decreased the most in Q1/19: -4.7%.