Letter IEDI n. 1006–The pandemic and the global industry contraction
According to the latest data from UNIDO (United Nations Industrial Development Organization), released recently, world industrial output fell sharply in the first quarter of 2020, worsening a weak trajectory that began in late 2018.
The decline in manufacturing production in Q1/20 reached -6.9% compared to Q4/19 and -6.0% in relation to the same period of the previous year, after seasonal adjustment. At the origin of the setback are the effects of the coronavirus pandemic, which were more intense in China in the first months of the year, but also affected the sector's performance in developed and other developing economies.
Manufacturing growth in industrialized nations, already negative in Q4/19 (-1.6%), suffered a further deterioration and reached -2.5% in Jan–Mar/20, versus the same period of the previous year.
Negative performance was seen in countries in Europe, with losses of -4.4% in Jan–Mar/20, and also North America (-2.4%). Developed countries in Asia managed to remain stable (0%) in comparison with Q1/19.
In emerging and developing economies, on the other hand, the year-on-year decline was less pronounced, at -1.8% when China is excluded. This group of countries had also done better than the advanced economies at the end of 2019 (+0.8%), but may show a substantial worsening in the following quarter, given that the coronavirus started to spread later on in those areas.
Among emerging markets, Latin America continued to be the negative highlight: -2.8% in Jan–Mar/20 against the same quarter of the previous year. This result was mainly due to the unfavorable figures of the industries in Argentina (-6.3%), Mexico (-3.4%) and Brazil (-2.2%), countries that were hit by the pandemic only at the end of the quarter.
Without a doubt, China was the hardest hit by COVID-19 in early 2020. The pandemic led to a decline in the manufacturing industry of -18.1% compared to the immediately previous quarter and -14.1% in relation to Q1/19. It is worth noting, however, that the data for Apr/20 already point to an easing of this situation.
Based on information from the countries themselves, the OECD and Eurostat, the IEDI developed an international ranking of industrial production growth for several countries in 2020. Until March, of the 40 countries with available data, Brazil occupied an intermediate position at 24th, being, however, among the negative cases. Few countries have managed to grow; examples are Ireland, South Korea and Turkey, which were among the best placed in the ranking.
In April, however, with the worsening of our health situation, the spread of social isolation measures together with the increase in uncertainty placed the performance of Brazilian industry among the worst cases. In the ranking up to April, Brazil was the 15th out of the 17 countries with data already available, ahead only of Macedonia and Luxembourg, with a decline of 8.3%.
UNIDO data also show that medium-high and high-tech industries, which together include many branches of capital and durable consumer goods, led the decline in manufacturing output with -6.3%. In addition to the direct effects of the COVID-19 pandemic, the increase in economic uncertainty has affected the decisions of consumers and investors, contracting demand for these goods.