Letter IEDI n. 909–The 2018 industrial weakening by technological intensity
Industrial recovery lost strength throughout 2018, with physical production growth equal to only half 2017's rate. Despite some non-negligible circunstancial factors such as the truckers' strike, the slowdown had already been felt in the first months of last year, reaching a considerable number of branches and the main regional industrial parks in the country.
GDP data released yesterday show this evolution well. Manufacturing GDP grew +1.3% in 2018 compared to +1.7% in 2017. Last year had already started at a weaker pace than the end of 2017 (+3.8% in Q1/18 vs. +5.7% in Q4/17), but it still had some dynamism, something that was reversed over time. In the last quarter, the figure was actually negative: -1.5% (compared to the same period of the previous year). In the extractive sector, the result for 2018 was +1% against +4.2% in 2017.
Taking the general industry's physical production, the balance of 2018 was as follows: +1.1% growth vs. + 2.5% in 2017, with the 4th quarter back in the red (-1.1%); 13 of the 26 branches surveyed by the IBGE fell in January-December; 57% of 93 industrial segments had worse results in 2018 than in 2017, according to an IEDI survey; a disappointing performance in the Southeast industrial parks, especially in São Paulo where output contracted in both Q3/18 (-1%) and Q4/18 (-3.7%).
This Letter IEDI brings another dimension of the industrial weakening in 2018, by grouping its different branches into 4 bands according to technological intensity, following the methodology developed by the OECD: high, medium-high, medium-low and low. The highlights and main results are systematized below.
• Among the four bands, three recorded a loss of dynamism in 2018 vis-à-vis 2017, especially the low-tech industry, which went from a +2% increase to a -2.3% drop last year due to food, beverages and tobacco (-4.2%) and textiles, leather and footwear (-2.7%). Wood, paper and pulp, which is also part of this band, did not grow in the 4th quarter/18 (-0.2%).
• The only group to improve performance in the first half of 2018 was the medium-low technology industry, from -0.8% in 2017 to +1.5% in 2018, thanks to the branches associated with the extractive activity, such as non-metallic minerals (+0.4%), metal products (+3.6%) and refined petroleum products and fuels (+1%). In the latter case, Q4/18 was again negative: -1.5% compared to the same period of the previous year.
• The medium-high technology category lost momentum, but the deceleration was relatively small: from +5.9% in 2017 to +4.8% in 2018. This was largely due to the performance of the auto industry, whose vehicle production increased +12.6% in 2018, although the fourth quarter was very weak (+1.7%). In Jan-Dec/18, output in the sector of mechanical machinery and equipment increased (+3.4% in 2018), while electrical machinery and equipment (-0.2%) and chemicals, except pharmaceuticals (-0.1% %) were practically stable.
• The high-tech industry registered a major slowdown. In 2018 it grew only 1/3 of what it had grown in 2017 (+1.1% vs. +3.2%), due to the decline in the dynamism of two sectors: radio, TV and communication equipment, whose growth of 22.2% in 2017 was reduced to only 2.6% in 2018, and office and information technology equipment, which fell from +17.7% to +7.3%. Both suffered strong losses in Q4/18 (-13.2% and -10.9%, respectively). The exception in this category was the pharmaceutical industry, whose results improved.