Downturn continues in manufacturing

The business tendency survey for the second quarter of 2020 shows a decline in total output compared to the first quarter of 2020. There are in particular the producers of capital goods that report lower production, but also producers of consumer goods and intermediate goods report a decline in production volume compared to the previous quarter.

The total industry employment also shows a decline in the second quarter of 2020. The decline is related to the comprehensive measures against the spread of infection that were implemented this spring. Lower employment is reported by all three main industrial grouping, but the decline is greatest for capital goods and consumer goods.

Reduced orders and decline in total stock of order

The total stock of orders in manufacturing declined sharply in the second quarter. There was also a clear downturn in new orders from both the domestic and the export market. Producers of all three main industrial groupings report a decrease in new orders in both the domestic and export markets. The fall in new orders is particularly sharp for manufactures of capital goods, where suppliers to the oil and gas sector contributed most to the fall. This affects particularly the manufacture of building of ships, boats and oil platforms and machinery and equipment together with repair and installation of machinery.

The decline in new orders among producers of capital goods is partly related to the sharp fall in oil prices in March leading to sharp cuts in investment plans in oil and gas, both globally and on the Norwegian shelf. The economic downturn among Norway's most important trading partners, particularly in the Eurozone and the United Kingdom, has contributed to lower demand for Norwegian export companies.

There is still growth in the price level both in the home and export market for overall manufacturing. Producers of consumer goods and intermediate goods, in particular, report increased prices for sales to the domestic market. Prices in the domestic market for capital goods were unchanged compared with the first quarter of 2020. Price growth in the export market is reported for both intermediate goods and consumer goods, while prices declines are reported for the producers of capital goods.

Expecting further decline in the third quarter of 2020

The general outlook for the third quarter of 2020 is still affected by the Norwegian and global measures against the coronavirus pandemic. A large number of industry leaders report that the pandemic is the reason for the pessimism expressed in the index for the general outlook of the third quarter. The general assessment is most negative among producers of capital goods and intermediate goods, while producers of consumer goods have a neutral view of the outlook for the next quarter.

The industry leaders report that future investment plans are adjusted downwards and new orders from both the domestic and the export market are expected to decrease sharply. The same applies to employment, which is expected to decline significantly in the third quarter of 2020 for manufacturing as a whole.

The industrial confidence indicator is less negative

The industrial confidence indicator for the second quarter of 2020 was -10.1 (seasonally-adjusted net figures), which is less negative than the -17.4 registered at the previous quarter. This is well below the historical mean, which is calculated to 2.9.

The low level of the industrial confidence indicator is clearly related to the fact that the infection control measures as a result of the corona pandemic affect directly the industry. The total stock of orders has fallen sharply in the second quarter and industry leaders now also expect a sharp fall in production volume for the next quarter of 2020. Producers of capital goods are the main contributors to the fall of the industrial confidence indicator.  Producers of intermediate goods contribute negative as well to the low level of this indicator, while the industrial confidence indicator for producers of consumer goods is positive and is helping to curb the decline for the industrial confidence indicator as a whole.

Values above zero indicate that total output will grow in the forthcoming quarter, while values below zero indicate that total output will fall. International comparisons of the industrial confidence indicator are available from Eurostat (EU), The Swedish National Institute of Economic Research and Statistics Denmark.

Weak demand and strong competition are limiting the production

An increasing share of managers is reporting that weak demand and strong competition were limiting factors for production increased in the second quarter of 2020. The numbers of leaders who report that the capacity of plant and supply of the lack of qualified labour is a challenge continued to fall in the second quarter of 2020.

The average capacity utilisation for Norwegian manufacturing is lower than the previous quarter, and was calculated to 76.0 per cent at the end of the second quarter of 2020. The capacity utilisation rate has fallen gradually in recent quarters and is now well below the historical average of 80.1 per cent. International comparisons of average capacity utilisation are available from Eurostat (EU).

Timelines

The survey data was collected in the period from 5 June to 21 July 2020.