Global manufacturing slowing down — UN agency

FACTORY PRODUCTION growth is expected to end this year slower than in 2010, as effects of debt crises in the West and consequent market uncertainty weigh on trade and private consumption, a United Nations (UN) agency reported earlier this month.

Growth of manufacturing value added (MVA) is expected to slow to 5.1% by yearend from 5.3% last year as developing economies, which have been outpacing their developed, industrialized counterparts, feel the spreading effects of economic troubles in the European Union (EU) and the United States, the UN Industrial Development Organization (UNIDO) said in its second-quarter report published last Sept. 1.

“Beginning-of-the-year expectations for sustained recovery from the 2008 financial crisis were dampened by a reduction in the dynamism of global private consumption and international trade during the second quarter, fueled by further tightening of fiscal policy [and] concerns about sovereign risks in some European countries leading to financial market instability and rising inflation,” the report explained.

The quarterly survey, which began this year, gathered data from countries monitored by the UN Statistics Division, including the Philippines, although the UNIDO report neither provided data for nor mentioned the country in its discussions.

Developing economies will continue to outperform industrialized countries, ending the year with 8.4% MVA growth compared to last year’s estimated 9.4%, with China projected to lead the way by growing 11% this year versus 12.2% in 2010.

Industrialized economies in North America, Europe and East Asia are seen to expand MVA by 3.1% this year compared to 3.4% in 2010.

World manufacturing output in the second quarter grew 5.2% annually, indicating that recovery had slackened since the first quarter when year-on-year output rose by a faster 7.5%.

Developing economies posted an annual growth rate of 11.2% in the second quarter, highlighting the group’s significant contribution to global manufacturing expansion since the onset of the global economic downturn in 2009, the report said.

“The main drivers of manufacturing output [for developing economies] have been business investments and exports and, in some countries, increasing consumer demand,” UNIDO said.

Latest available data from the National Statistics Office (NSO) show a deceleration in factory production, with volume of production index (VoPI) contracting by 0.2% annually in June, from slowing growth rates of 1.9% in May, 1.8% in April, 9% in March, 10.2% in February and 13.3% in January.

NSO data show further that all months last year saw double-digit VoPI growth rates, starting with a peak of 36.2% in January and easing to a low 15.7% in December, with the full-year rate at 23.3%.

The UN report showed that industrialized economies increased annual manufacturing output by a mere 2.7% between April and June, compared to 5.7% growth in the first quarter.

“Consumer spending does not seem to offset the winding down of stimulus packages, fiscal consolidation and high commodity prices of the previous quarter,” the report noted.

Japan was cited as possibly the single biggest cause behind that slowdown as manufacturing output in that country fell 6.9% in the second quarter in the wake of the disasters that struck in March, the UN agency said.

A sectoral breakdown also bore sluggish manufacturing output growth for industrialized countries, which registered annual contraction across a number of areas, specifically: radio, television and communication equipment (-7.6%), motor vehicles (-6.2%), tobacco (-3%), paper and paper products (-1.9%), and apparel (-1.6%).

“The reduction in motor vehicle production was mainly the result of the closing down of many Japanese supplier and assembly factories following tsunami disaster,” UNIDO said.

In comparison, developing economies recorded annual contraction in just three sectors, namely: wood products excluding furniture (-4.3%), motor vehicles (-1.5%), and apparel (-1.3%). — Eliza J. Diaz, Businessworld