Production declines in the real economy

The “real” economy which, according to Minister of Finance Tonio Fenech, is still doing well, experienced a drop in industrial production in May. 

According to the NSO, seasonally-adjusted industrial production in May fell by 1.2 percent from April’s level and by 0.7 percent on the May 2011 level.  This is the second monthly drop in the first five months of the year and leaves the production index some 8.0 percent below the May 2008 level.

Most of the blame for the monthly drop in May belongs to the lower production of consumer goods, which fell by 2.2 percent, though on an annual basis is 1.4 percent higher than a year ago.  There was also a monthly drop of 1.3 percent in the production of intermediate goods, which was also 5.3 percent below last year’s level.  On the other hand, energy production and capital goods production were 1.0 percent and 0.8 percent higher in May than they were in April (both 2.8% higher than a year ago).

If one looks at industrial production adjusted for the number of working days, one finds that this was even weaker.  This adjustment is a statistical method for removing from the time series the effect of variations in the number of working days in different months. There was a monthly drop of 3 percent and an annual decrease of 0.8 percent.   But the working-day adjusted production in May was 3.6 percent above the average for the first four months of the year, which on its own is quite an encouraging sign. 

What is not so encouraging is the composition of the drop.  The decrease was mainly attributable to a monthly drop of 4.5 percent (annualised 9.1%) in production of industrial supplies, which could mean that production in future months will be even less.  This setback was important, because production of industrial goods accounts for some 37 percent of all production.  Though production of consumer goods, which accounts for just over 41 percent of all production, was 1.3 percent higher on a monthly basis (after the previous month’s drop of 2.8%) it was only 1.9 percent better on an annual basis (compared to annual increases of 2.6% and 4.5% in March and April).  This could mean that production of consumer goods will deteriorate in future months.  One cannot say with certainty, though, as one month’s figures are not enough to indicate a trend. 

Working-day adjusted production of capital goods, with a weighting of almost 14 percent in total production, was positive on an annualised basis (+1.9%), but 2.7 percent down on a monthly basis.  May’s production was the second weakest in five months – again not a good omen.  On the other hand energy production was 7.8 percent better on a monthly basis and 3.1 percent better on an  annualised basis, but this has the lowest weighting (8%) in total production. 

Analysts are looking forward eagerly to the publication of industrial production figures in the Eurozone to assess how Malta’s production is faring in relation to that of its trading partners.