Source: press office Presidency of the Chamber of Commerce of Treviso Belluno|Dolomiti
MANUFACTURING HOLDING UP AMID GROWING UNCERTAINTY
Energy costs, raw materials, semi-finished products ballast the recovery. Companies do not lack demand, but production slows down due to supply difficulties. Delivery times are getting longer: in 2019 the average production lead time was around 50 days, today it has risen to around 80 days
Treviso, 20 May 2022
President Mario Pozza's comment
Two years after the outbreak of the Covid epidemic and two months after the start of the Russian invasion in Ukraine, the outlook for growth worldwide is uncertain - stresses Mario Pozza, President of the Chamber of Commerce of Treviso and Belluno|Dolomiti - with the interruption of the recovery and adjustment process of the global economy that had characterised the last period of 2021. The soaring inflation, due to energy price increases, risks compromising the purchasing power of consumers.
Despite this difficult international situation - Pozza continued - in the first three months of 2022, manufacturing companies in the Treviso area managed to record a growth in industrial production of +3.5% over the previous quarter (the increase was +5.5% at the end of 2021). For Belluno companies, there is even talk of +8.1%, but as always this figure is affected by statistical amplification due to the small size of the sample of Belluno companies. But - Pozza immediately dampens enthusiasm - the growth results are also supported by two factors: the positive legacy of 2021 and a completely unprecedented lengthening of the order portfolio, due to the supply difficulties that prevent companies from meeting production schedules.
The length of the order backlog - the President explains - is perhaps the indicator that allows us to better understand the paradoxical situation that manufacturing companies in the Veneto region are experiencing. In the quarter under review, the indicator (in Veneto, as in Treviso) rose to 76 days of assured production (84 days in Belluno), extending order processing times by at least a month (on average) compared to the first quarter of 2019 (51 days), which we still hold as an 'ordinary' term of comparison. And there are sectors such as industrial machinery and transport equipment (including automotive components) that see their order processing time rise from around 70 days in Q1 2019, to over 110 days today: over six months of work.
The positive climate of confidence shown by companies for the second quarter of 2022 should therefore be read with great caution - warns Pozza - because the forecasts refer to a short timeframe. The feeling is that inflationary pressures still have a slight impact on the sentiment of Veneto entrepreneurs and that production is still benefiting from the tail end of the post-Covid recovery. In fact, companies already have orders at home, albeit with all the differences from sector to sector. The problem, if anything, is to be able to fulfil them, not only to collect, but above all to avoid further deterioration of operating conditions (company costs) with respect to contracts already signed.
This in our view - the President concludes - is the key to contemplating these forward-looking judgements, but if the war continues unabated we will enter a territory in which no one yet knows what will actually happen. Even in the short term, inflation and energy price rises may have an impact on households' propensity to consume.
The international and national picture
The first quarter of 2022 brought the world economy yet another strong stress. In January (but it could already be seen in December), the flare-up of the pandemic due to the Omicron variants of Covid-19 led to further counter measures, differentiated according to the progress of vaccination campaigns in the various countries.
At the end of February, the tensions that had grown in the second half of 2021 culminated in Russia's invasion of Ukraine, resulting in a humanitarian crisis and heightened problems in the energy markets, especially in Europe.
Then, in March, new problems emerged in the functioning of supply chains: on the one hand, the Russian-Ukrainian conflict led to shortages in the availability of raw materials and semi-finished products from that area, with correlated price increases; but a further reduction in the supply of inputs was also caused by the latest wave of Covids that hit China. Confirmation of this dynamic comes to us from the Baltic Dry Index, which measures the price of sea freight, and which recently rose to over 3000 points, not since November 2021.
It is not surprising, therefore, that the International Monetary Fund's estimates (World Economic Outlook in April) have been revised downwards compared to the January forecast: global GDP is estimated to have grown by +3.6% (it was +4.4% in January); in the Eurozone, the growth rate has gone from +3.9% to +2.8%; the estimate for the United States, on the other hand, remains substantially stable (+3.7%), confirming how the consequences of the war can be decidedly asymmetrical: inflation remains high for this country, currently at 8.3%. The European countries that have seen their GDP estimates fall the most are Germany and Italy, now positioned on expected growth rates of +2.1% and +2.3% respectively. Both are countries where manufacturing is very important, and dependence on energy imports from Russia is high, with the German economy heavily influenced by the crisis in the automotive sector, also linked to microchip supply problems.