Veneto's economy starts again thanks to industry. 2021 starts with a rebound in production and turnover (+3.1%), but not for all economic sectors
Pozza: In the first quarter of 2021 Veneto industry recorded a robust performance. Confidence and optimism are the leitmotif for the coming months, thanks also to the restart of domestic demand (+5.6%) and foreign demand (+6%) compared to the last three months of 2020
Source: Unioncamere Veneto press office
Venice, 27 May 2021 | In the first three months of 2021, the acceleration of vaccine administrations and the easing of the health alert for covid-19 have allowed for a recovery in industrial activity in Veneto, despite the fact that the restart is not homogeneous among the various sectors. Industrial production, after the -8.6% contraction in the average 2020, at the beginning of 2021 recorded an expected (and expected) positive variation of +12% on an annual basis, influenced by the low levels reached at the beginning of 2020, while the seasonally adjusted economic trend is +3.1%. In addition to production, turnover is also up (+3.1%), and above all, orders are being acquired both for the domestic market (+5.6%) and for exports (+6%), offering visibility for the future. The Veneto industry's rebound, if compared to 2020, when the economy was struggling with lockdown and the beginning of the pandemic, could be defined as "physiological". Even with the necessary caution, however, it is reasonable to assume that the context of the regional industry is destined to improve further in the coming months, although heavily conditioned by the cost of raw materials and the shortage of components.
This is confirmed by the data of the VenetoCongiuntura survey by Unioncamere del Veneto conducted between April and May 2021 on a sample of 2,275 companies with at least 10 employees, to which more than 90,000 people are referred (www.venetocongiuntura.it), and which make us understand the different speeds of recovery at play in Veneto industry.
This is well illustrated by the upward curve of the degree of utilisation of the plants, which in the first quarter of 2021 returned to a value close to 73% (it was 69% at the end of the year), in line with the pre-covid situation. Compared to last quarter, a more convergent situation is now emerging between sectors. The common trait is, almost always, the rapid rise to the "V" of capacity saturation, which also concerns sectors such as transport equipment and eyewear, which had experienced deep falls in the indicator during the central quarters of 2020 and were still operating at reduced capacity at the end of the year.
The food industry and the fashion system remain "out of the chorus": the former shows a degree of capacity utilisation that is even lower than in the snapshot of the end of 2020 (from 71% to 68%), clearly paying for the continuing restrictions on tourism and catering activities. Even the fashion system stopped at 68%, although it was up 5 points on the previous quarter. At the opposite end of the scale is the electrical and electronic machinery sector (which also includes household appliances), whose capacity saturation exceeded 77%, a jump of 10 points compared to the situation in the last three months of 2020. Equally interesting is the recovery of plastic rubber: the degree of plant utilisation rose from 69 to 76%.
On the other hand, an analysis of the judgments related to the economic recovery, which allow us to understand how widespread the situation of positivity may be among companies in the first quarter of 2021 (taking "almost" for granted the convergence of the sectors in the rebound on an annual basis), shows that almost 53% of Veneto manufacturing companies declared an increase in production, only 12% are for stagnation, while 35% showed a decrease. This is the basic situation, which is then summarised by the seasonally adjusted increase in production of +3.1% compared to Q4 2020. The distribution of opinions is fairly faithful to what was observed at the end of the year: the economic recovery continues to affect the absolute majority of companies; at the same time, there is still an abundant third of companies that are struggling to catch up with the recovery. The area of stationarity is at a minimum, confirming a scenario of strong polarisation between sectors/companies "on the upswing" and sectors/companies "at the pole". A similar situation can be found for turnover: the same proportion of companies with growing sales on an economic basis (53%), and the same seasonally adjusted economic variation (+3.1%).
Compared to this average distribution of judgments, the sectors most polarised on the rebound in production and sales are rubber plastics, metal carpentry, industrial machinery and eyewear. In these sectors, positive judgments involve a broad entrepreneurial base, even with shares significantly higher than the industry average. The fashion system and the means of transport industry, on the other hand, still seem to be "in the middle of the road": a majority of companies (which is hardly an absolute majority) report an increase in production and turnover, again on an economic basis. At the same time, 36% of companies in the fashion system report a drop in production (a figure that rises to 40% for turnover). In the transport sector, 27% of companies in the sector report stable production, in addition to 24% who report declining production (with more markedly negative effects on sales, which are indicated as declining by 33% of the companies surveyed).
The wood-furniture and food industries have the highest concentration of negative opinions, but the dynamics experienced by the two sectors over the twelve months are different. The wood-furniture sector, which was the protagonist of an early recovery in 2020, driven by construction and various bonuses, boasts robust year-on-year changes (+21% for production and +26% for turnover, compared to an average growth of +12% for regional manufacturing for both indicators). Therefore, the slowdown recorded in the quarter in question, evidenced by weak cyclical variations and a distribution of judgments in negative territory (51% of companies in the sector declare a fall in turnover, compared to 41% who report an increase), seems more like a physiological settlement of the chain's operations (after the initial "tear"), in a horizon of stability if not further growth in demand (for the second quarter of 2021, 63% of wood-furnishing companies expect an increase in production).
The food industry, on the other hand, seems to be telling a different story, because the accumulation of negative opinions does not only concern the economic situation (53% of companies reported a drop in turnover, compared to 36% who indicated an increase compared to December). Above all, the sector's performance on an annual basis appears critical, in clear contrast with the rest of the manufacturing sector: in fact, production (-2.5%), turnover (-1.9%) and foreign orders (-3.0%) are down; only domestic orders are defending themselves, with minimal growth on an annual basis (+1.2%) compared to an average figure of +10.3%. This situation is largely reflected in the distribution of opinions, especially for turnover. If for manufacturing as a whole 62% of the companies surveyed were able to count on an improvement in sales over the last twelve months, for food only 42% of companies could indicate the same, compared to 47% with declining sales.
Despite these critical areas, companies in the Veneto manufacturing sector seem to be looking to the immediate future with confidence and optimism. If the forecasts for the first quarter of 2021 were dominated by uncertainty (there was an almost precise division between downturn, stationary and increase judgments for the various indicators monitored), in these forecasts, collected in April, which look ahead to the second quarter of 2021, the picture is decidedly rosy: on average, 57% of companies are betting on an increase in production, compared to 13% of pessimists and 30% who are indicating a stationary situation. Compared to these expectations, the above-mentioned wood furniture, industrial machinery and eyewear sectors differ positively: in these three sectors, almost 2/3 of the entrepreneurs interviewed are optimistic.
Even the food industry, glimpsing a summer of reopenings in the restaurant and tourism sectors, looks forward to the coming months with confidence, with a little more caution: the share of optimists reaches 53%, but the segment of skeptics remains large (29% of companies are for stationary). However, only 18% of food businesses fear a further contraction in business. The fashion system is in a similar situation: 48% of companies believe in a restart, 32% think it is more plausible that there will be a standstill and 20% fear a further drop in production. These fears seem to come above all from the performance of foreign markets, since the share of pessimists rises to 23% with reference to foreign orders.
In just a few months, thanks to the progress of the vaccination campaigns, signs of recovery have gained strength at global level, which at the end of the year were still just a mere hypothesis. The timing of the recovery remains out of sync, both for geographical and sectoral reasons, - explains Mario Pozza, president of Unioncamere Veneto. - In the first quarter of 2021, however, Veneto manufacturing industry recorded a more than positive trend (+3.1% compared to the previous quarter) that continued, albeit at a more normalised pace, the rebound in activity highlighted in the second half of 2020. The outlook is also clearly improving, according to the assessments of entrepreneurs and also in view of the progressive reopening of many activities in the services sector. This, - comments Pozza, - should also allow sectors such as food and fashion, which are closely linked to tourism, catering and the mobility of people in general, to make up lost ground. 53% of companies expect a growth in production in the next three months, up more than 20 points compared to the end of 2020.
The Ihs-Markit survey on Italian manufacturing also shows similar evidence: the index rose to an all-time high in April (60.7 from 59.8 in March), driven by the positive dynamics of production and the acceleration of orders not seen in years. Even with all due caution, it is reasonable to assume, - President Pozza concluded, - that the context of regional industry is destined to improve further in the coming months, sustained by the recovery of domestic demand (+5.6%) and foreign demand (+6% compared to the last three months of 2020), which have so far been held back by measures to contain the virus and by uncertainty and concerns over the evolution of the health crisis.
There are still some unknowns, such as the increase in the price of raw materials, the release of redundancies, and whether the crisis has affected the financial solidity of companies. These are aspects that we have verified, - says Pozza, - by asking the same sample used for economic monitoring a few in-depth questions.
Indeed, 58% of the companies surveyed perceived a general increase in raw material prices compared to 2019, with an average increase of +12.7%. However, the price of steel coils has risen by almost 40% since August 2020. And there are difficulties in obtaining supplies of electronic components. These price rises may be temporary, as analysts say, but in the meantime they are complicating this restart phase, because sometimes companies find themselves in objective difficulty in filling orders due to a lack of raw materials or semi-finished products.
The employment scenario is less critical: only 7% of the companies surveyed thought they would have to reduce their workforce once the ban on redundancies was lifted. At least this is what emerges from our sample - Pozza is keen to point this out - which analyses manufacturing companies with 10 or more employees. Within this subset of companies, the proportion of workers at risk of dismissal could be around 13% (a figure that tends to rise for the fashion system). If we transfer this data to the universe of the manufacturing sector, our estimate is of about 5,000-6,000 probable redundancies in Veneto, at present. But it will be necessary to understand the dynamics of the sector (and of those sectors that are now less connected to the recovery) at the actual time of the lifting of the blockade.
The last aspect we investigated, - concludes Pozza, - concerns the financial situation of companies: 59% of the companies interviewed did not request loan moratoria after the start of the Covid-19 pandemic. Another 13% of companies have requested moratoria, but these have already expired. Slightly more than a quarter of the sample (28%) has a moratorium still in place, but within this group, only 11% of companies expect to have difficulty repaying their debt when due and plan to seek restructuring. In the overall comforting picture of the sector's financial solidity, - comments Pozza, - this is the area of risk that can be circumscribed, which affects the various sectors across the board, with greater intensification for the fashion system and means of transport.
As is now customary, this economic note is also enriched by the contribution of Veneto Lavoro on employment data. From their observatory it emerges that in the first quarter of 2021 the balance between hirings and terminations, as regards private companies and permanent, fixed-term and apprenticeship contracts, in Veneto amounted to +29,000 units compared to +18,000 recorded in the same period of 2020 and +44. 500 in 2019, but the most reliable indicator of the labour market trend in this phase is the volume of demand for labour, with recruitment down by -17% compared to the same period last year and as much as -31% on 2019. The balance by contract type was positive for fixed-term contracts (+24,000 positions) and permanent contracts (+5,400), while apprenticeships were just negative (-700). The employment balance is positive for +13,000 positions for agriculture, +3,000 for construction and engineering, while services (net of trade and tourism) record a +9,000, while the decline in demand for labour is concentrated mainly in the sectors subject to restrictions (tourist services -60% and trade -23%), but has not spared even the industrial ones "frozen" by the turnover block.
In April 2021 Unioncamere Veneto submitted to the sample of manufacturing companies of the VenetoCongiuntura survey a quick set of questions, functional to understand some aspects widely debated in this phase of progressive exit (hopefully) from the pandemic: the extent and depth of the fall in turnover in 2020 in the various manufacturing sectors, the criticality in procurement, the possible forecasts of dismissals once the blockade is lifted, the situation of companies with respect to any moratoria required.
According to the data collected, 74% of the companies surveyed reported a decrease in turnover in 2020 compared to 2019, while only a quarter reported an increase. The sectors with the highest proportion of companies reporting declining turnover were paper and printing (87%), electrical and electronic machinery (82%) and textiles and clothing (83%), while the food industry still managed to hold its own, with 40% of companies reporting increasing turnover. The average contraction in turnover was -7.4% (2020 on 2019): but it was small enterprises that suffered the most (-9.5%). On a sectoral level, only marble, glass and ceramics companies (+3.7%) showed an increase in turnover compared to the pre-crisis period; food and beverages showed substantial stability (-0.3%); all the other sectors recorded a decrease in turnover, with more marked decreases for rubber and plastics (-17.5%), textiles and clothing (-17.2%) and paper and printing (-13.1%). This is followed by transport equipment (-9.3%), wood and furniture (-9.2%), metals and metal products (-9.1%), and machinery and mechanical appliances (-8.9%). Negative but above the national average was the variation for electrical and electronic machinery (-6.8%).
The industrial economy has regained the scene, but the global economic system since 2020 has been suffering from the increase in the prices of certain raw materials. In 2020, 58% of the companies surveyed perceived a general increase in raw material prices compared to 2019, with an average increase of +12.7%. Looking at the size level, the share of companies that perceived a price increase rises to 61% among small companies and 49% among medium to large companies. At sector level, the price increase was felt more strongly among enterprises in electrical and electronic machinery (69%, with an average price increase of +10.7%), transport equipment (65%, with an average perceived price increase of +17.5%) and metals and metal products (63%, with an average perceived price increase of +16.5%).
The employment scenario is less critical: only 7% of the companies surveyed think they will have to resort to reducing their workforce once the freeze on redundancies is lifted. Within this subset of companies, the proportion of workers at risk of redundancy may be around 13% (a figure that tends to rise for the fashion system and means of transport). If these data are applied to the manufacturing sector as a whole, it is estimated that the Veneto manufacturing industry could lose between 5,000 and 6,000 jobs if redundancies were to be made immediately. An estimate that necessarily remains open to the evolution of the economic situation and the ability to reabsorb even those sectors/segments that are currently less connected to the recovery.
The financial situation of companies also seems to be comforting: 59% of the companies interviewed, after the start of the Covid-19 pandemic, have not requested a moratorium on loans, while 13% have requested one and it has already expired and 28% still have an active moratorium. Of the latter, only 11% stated that they were experiencing difficulties in repaying their debt when the moratorium expired and were planning to apply for restructuring, while the remaining 89% claimed to be able to repay their accumulated debt. Specifically, 65% said they would be able to repay their debt using self-financing or cash stocks, 13% said they would repay their debt using new loans or capital injections, and 11% said they would repay their debt by reducing other outflows (e.g. reducing investments, reducing staff).