News of the global slowdown has focussed on the contraction of GDP in national economies and the decline in trade across the interna-tional markets. Evidence of the impact of slowdown in specific sectors like industry and services have been more random and generally confined to the corporate results. The Bric countries, though hit by the slowdown, have so far avoided a recession and the impact has been restricted to a deceleration in growth rates. And this has hurt industry which has seen growth slip even faster.
However, the industrial slowdown has not affected all Bric countries equally badly. Numbers on industrial growth till November 2008 show that Russia and Brazil have been most affected with output even declining in the most recent month. Though Indian industry has registered a decline in output in October, the most recent figures show that it has bounced back to positive levels in November. And in the case of China the slowdown has only resulted in a sharp deceleration in production.
Industrial growth in China, which has the most buoyant industrial sector across Bric economies, has decelerated from a peak of 17.8% in March 2008 to just 5.4% in November. This was the weakest growth in almost a decade. More worrying is the fact that investments in industry has slowed down from peak levels of 15.6% to just 1.5% across the year.
The trends across sectors show that the major impact has been on the state owned sector rather than on private enterprises. While production growth in private enterprise has slowed down from 24.1% in March 2008 to 14.1% in November, that of state owned enterprises has slumped from 14.3% to 0.7% during the period.
Detailed numbers show that production of major iron & steel products are in the 11-16% range for the second consecutive month in November. Import of iron ore has come down from 39.2 million tonne in September to 34.5 million tonne in December. The developments in steel seem to have been mainly dictated by exports where the value of steel outflows has been cut by around half from $7.9 billion in September to $3.93 billion in December. Sales of commercial vehicles fall by 25.6% in November, the highest fall in the last five months.
Some forecasters have estimated that growth in the first few months of 2009 will come down to 5% and that industrial recovery will happen only in the middle of the year. According to government sources, an 8% growth of the economy in 2009 will require that growth of industry pick up to 12% and this is unlikely with production of important sectors like steel, vehicles and electricity falling.
The Indian scenario, though not as dismal as that of Russia and Brazil, has seen fortunes fluctuate sharply in industrial sector. Growth, which had registered a high of 9.8% in February 2008, rose and fell over the next seven consecutive months and then suddenly contracted in October 2008, after which it has once again revived to 2.4% in November. Whether the pick up would hold in the coming months remains a big question.
In Brazil, growth has slowed down from 10% in April to 1% in October. Industrial output then declined by 6.2% in November. This was the highest fall in seven years and surprised even the worst pessimists. The fall in capital goods was much sharper with growth sliding down from 29.7% to 3.6%. Metal industry was one of the worst affected with output falling by 8.9%. Production of machinery and equipment also fell by 6.6%. Sectors like electric and communication were the most affected with the industries contracting by 8.6% and 20.5% respectively.
Slowdown in consumption was a major factor in pulling down industrial growth. The largest fall was in durable goods where production declined by 22.1%, whereas output declined by 2.7% in semi- and non-durable goods. This has pulled down intermediate goods where output declined by 7.5%.
Most recent monthly figures show that vehicle production has declined by 44.3% in December (month-on-month basis) with the brunt of the fall being on production of trucks and buses, where output has declined by 60.6% and 56.7%.
Current expectations are that growth in Latin America?s largest economy in the current year will be the slowest since the year 2003.
Industrial growth in Russia, the most affected Bric country, has slumped from a high of 9.2% in March 2007 to 1.7% in November, and then declined by 8.7% in November 2008. The contraction in industrial output was the highest since the economic collapse of 1998 when the government defaulted on debt payment. This has raised the spectre of social unrest as the size of overdue wages went up by 83% in the latest month.
The economy slowdown, which had remained largely confined to the financial sector, has hurt the real sector for the first time in the new cycle. The fall was much sharper in manufacturing where output fell by 10.3%. Steel output has declined by 19.7% in the most recent month, while truck and card production dropped by 58.1% and 7.2% respectively.
The worst case scenario show that industrial output would fall by 4.7% in 2009 dragging down GDP growth by 0.5%. A more optimistic estimate is that decline in industrial output would be 3.2% and GDP growth will be a more attractive 2.4% if the anti crisis measures take full affect.
