Worrying decline of the manufacturing industry in May 2023: gloomy forecasts

The data recorded by official statistics, as well as the international context, the perception of businessmen and most forecasts point to a weak performance of the economy, especially the manufacturing industry.
According to statistics published by DANE, the evolution of industrial manufacturing production is not positive. There are drops, deceleration and a negative perception on the part of businessmen.
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Real decline in the manufacturing industry
The real production of Colombia’s manufacturing industry in May presented a decrease of 3.4%, real sales fell 2.2% and employed personnel decreased 0.1%, compared to the same month of 2022, according to the National Administrative Department of Statistics (DANE).
The figures are worrisome considering that, of the 39 industrial activities represented in the DANE survey, 29 of them registered negative variations in their real production.
From January to May 2023, real production in the manufacturing industry fell by -2.3%, real sales by -2.8% and employed personnel by 0.9%.
Textiles and apparel, among the most affected sectors
In May 2023, the manufacture of textile products decreased 22.1% compared to the same month of 2022, while clothing manufacturing decreased 6.9% in the same period. With this, both sectors contributed half a percentage point to the decline in real production.
According to Guillermo Criado, spokesman for the Colombian Chamber of Apparel and Allied Industries (CCCyA), told El Colombiano newspaper, 2023 started differently because all companies projected with 2021 figures.
This meant that trading companies, as well as textile and apparel companies, were left with high inventories and slowed sales, partly due to political uncertainty, inflation and higher interest rates.
Criado added that the economy cooled down due to the increase in the interest rate by the Central Bank and its subsequent transmission to the rates charged by the financial system to its clients. This, in turn, had a negative impact on employment and the turnover of companies, which are the ones that create jobs.
The situation for the textile and apparel sector is worrisome, considering that it provides 19% of the country’s manufacturing jobs and that many businessmen are thinking of cushioning the situation by cutting personnel, or have already done so.
A pessimistic perception
According to Fedesarrollo’s evaluation in its business opinion survey for June of this year, the Commercial Confidence Index (ICCO) stood at 33.7%, a drop of 5.3% compared to May. The entity explained that this is due to a 1.5% decrease in the level of inventories and a 16% drop in economic expectations for the second half of the year.
On the other hand, the Industrial Confidence Index stood at 11.5%, with a 3% decrease compared to May, which is explained by a 12.9% reduction in the volume of orders, as well as by a 5.9% contraction in the level of inventories.
With respect to the expectations of employment generation in the industrial sector for the following quarter, it is observed that they fell 9.1%. At the same time, the perception of the presence of smuggling activities increased 0.2% with respect to the previous quarter, according to Fedesarrollo’s assessment.
Forecasts predict further declines
Although in the last weeks many experts and entities have estimated a higher growth with respect to the forecasts made at the beginning of the year, the estimates still foresee a very low growth.
For example, Bancolombia’s Economic, Sector and Market Research team raised its economic growth projections from 0.6% to 1.2%. However, these estimates assume that the manufacturing industry will remain at low levels of performance and assume that any positive performance will be concentrated in activities related to entertainment and recreation, the financial and insurance sector, and mining. Meanwhile, the government forecasts inflation of close to 9% by the end of the year and maintains its intention to significantly increase the price of gasoline and diesel, a measure that could aggravate the performance of this indicator.
Although the U.S. Federal Reserve did not raise interest rates at its last meeting, it did announce at least two rate hikes for the second half of this year. This is expected to result in equivalent increases in the Bank of the Republic’s interest rates for the remainder of the year.
Beyond its optimistic forecasts, the government’s decision is to maintain strict compliance with the fiscal rule, thus continuing to cool the economy.
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