Letter IEDI n. 1047–The industry's reaction by categories of technological intensity
In September 2020, the Brazilian industry returned to the production level prior to the March–April Covid-19 shock, after five consecutive months of recovery. As a result, the picture in the 3rd quarter was almost on par with the same period last year. Today's Letter IEDI analyzes industrial evolution according to its different groups of technological intensity.
Without taking into account the extractive branch, industrial performance has been slightly more favorable in recent months. While the level of production for the sector as a whole in Sep/20 was only 0.2% above that of Feb/20, manufacturing surpassed pre-crisis output by 1.1%. In relation to Q3/19, the Q3/20 figure was -0.6% for the general industry and -0.5% for manufacturing, signaling a more vigorous recovery in the latter case.
Although only in Sep/20 did the manufacturing industry manage to produce more than last year (+4.4%), the decline registered in Q3/20 meant a significant easing of its crisis, since in the previous quarter, which concentrated most of the effects of the pandemic, it had suffered a -21.7% drop. Also, it did better even when compared to Q1/20 (-1.1%).
Behind this favorable path, there are still heterogeneous performances of the different industrial branches' groups according to technological intensity. The classification used by the IEDI is based on the OECD methodology, which divides the industry into four ranges: high, medium-high, medium and medium-low technology. There is no industrial branch in the low technological intensity category, which is mainly composed of agriculture and service activities.
The IBGE data thus used by the IEDI show two patterns of results in Q3/20 for the manufacturing industry. Some branches have already left behind the bad days and started growing again in relation to last year and others, despite having reacted, remained in the red.
The first pattern was presented by high and medium-low technology activities, that is, the extremes of the industry's classification by technological intensity. In the second pattern we see the intermediate groups—i.e., medium-high and medium technology.
The best Q3/20 results were seen in the medium-low technological intensity range. Its +4.1% increase was caused mainly by the food industry (+9.8%), stimulated not only by the domestic market, thanks to the emergency aid to low-income families, but also by the reaction of some international markets (like China). Metal products have also grown and paper and cellulose have greatly reduced their loss.
The obstacle to a more vigorous recovery in the medium-low technology industry comes from textiles, clothing, leather and footwear (-15.5% versus Q3/19). In addition to a more fragile demand, these activities, for being labor intensive, tend to encounter greater difficulties in normalizing their production lines under health security and physical distance protocols.
The second group with the best result was high technology, which registered +2.0%. Since Q1/20 this category had not had such a positive rate. Much of this, however, was due to a weak basis of comparison. Among its branches, the leader was image and sound electronic devices (+21.9%), followed by the pharmaceutical industry (+2.1%). Computing machinery and medical, optical and precision instruments fell less than earlier in the year.
Among those with insufficient recovery, the medium-high technology intensity industry recorded the greatest decline: -8.5% compared to Q3/19, but its progress is undeniable, since its result in the previous quarter had been - 42.8%. Machines, appliances and electrical materials as well as chemicals (except pharmaceuticals) pushed performance upwards: +6.7% and +4.3%, respectively.
The production of vehicles—which, despite the recent easing, still fell -25.0% in Jul–Sep/20—and the production of machinery and equipment—with a variation of -2.9%—slowed the recovery of the medium-high technology industry. These branches, whose demand requires greater levels of confidence and optimism, are important to spread dynamism and build future production capacity.
Finally, the medium technology intensity industry, which has not grown in two years—that is, since Q3/18—presented a -3.1% contraction in Jul–Sep/20, driven by basic metals (-7.1%). Rubber and plastic, with the increased demand for packaging and disposables due to the pandemic, grew +3.9%, as did other non-metallic mineral products (+4.4%), favored by the reaction of urban construction.