Letter IEDI n. 1003–COVID-19 and the Industry by Technology Intensity
In the first quarter of 2020, the first effects of the COVID-19 crisis were already felt by the Brazilian industry. First, due to the disruption of some supply chains, especially of imported goods, followed by the necessary social isolation measures adopted at the end of March. Uncertainty has also been a growing obstacle to industrial performance.
This Letter IEDI analyzes the figures for the industry in January–March 2020 following the classification of its sectors according to technological intensity. The methodology adopted by the OECD has been updated and incorporated in this edition. As a result, the industry was grouped into four ranges: high, medium-high, medium and medium-low technology. The extractive sector belongs to this last range only, while manufacturing has branches in all of them.
Largely due to the drop in Mar/20 (-9.1% compared to Feb/20 and -3.8% compared to Mar/19), the physical production of the general industry (manufacturing plus extractive activities) decreased 1.7% in Q1/20 compared to the same period of the previous year. The manufacturing industry recorded -1.1% and the extractive sector -5.8% in the quarter.
The worst performances were concentrated in groups with higher technology intensity, whose production is part of longer supply chains and demand imported inputs, parts and components, making them more vulnerable to the effects of the pandemic.
In the group of high technological intensity, output decreased 2.9% in Q1/20, influenced by the stability of the branch of pharma-chemicals and pharmaceuticals and the 4.0% fall in radio, TV and communication equipment. In addition to problems with suppliers, the electronics industry tends to see its market shrink in the face of households' fears of unemployment and loss of income, as well as the difficulty of obtaining credit in a context of high uncertainty.
In medium-high technology, the loss was even more pronounced: -3.4%, largely due to vehicles, which declined 9.0% in Q1/20. The figure for March (-16.2%), however, suggests that the progress of the pandemic will further impact the auto industry. Machinery and equipment (-0.2% compared to Q1/19) and instruments and machinery for medical and dental use (-4.8%) also fell, while the other branches remained practically flat.
In the group of medium technology intensity, the result was also -3.4%, due to negative rates in 80% of its sectors. The most intense losses were seen in maintenance and repair of machines and equipment (-11.2%), non-metallic minerals (-4.8%) and metallurgy (-2.2%).
The medium-low technology industry, on the other hand, was in the red (-0.3%) in Q1/20 only due to the contraction of the extractive sector. Considering just the manufacturing activities, the result was +1.3%, the only technology range with positive growth. Although the food industry did not have a negative impact (+0.1%), the high was driven by oil products, coke and biofuels (+11.3%).