The recent forecast by the United Nations Industrial Development Organization (UNIDO) reveals the slowing down of industrial production in second quarter in 2011-signalling that the pace of recovery may be slowing. This is reportedly due to decline in expected growth in world factory production this year as private consumption and international trade continue to fall-with apparel output in developing economies among the few sectors to have contracted in the past six months according to a new report. The world manufacturing output grew by 5.2% in the second quarter of 2011 compared to the same period last year. This growth rate, however, was lower than the 7.5% reported in the first quarter of 2011. If this trend continues, the overall growth of manufacturing value added (MVA) this year is expected to be 5.2%, which is slightly lower than in 2010.

"Beginning of the year expectations for a sustained recovery from the 2008 financial crisis were dampened by a reduction in the dynamism of global private consumption and international trade during the second quarter, fuelled by further tightening of fiscal policy concerns about sovereign risks in some European countries leading to financial market instability and rising inflation," the report says.

Growth estimates for the second quarter show that production of basic consumer items such as textiles, apparel and footwear remained high in developing countries - with gains in China and Turkey due to rising consumer demand. But there are also signs that some of this momentum is starting to lose its pace. Year-on-year quarterly output in the textiles sector rose 4.8% in developing countries, but was flat in industrialised economies, with worldwide growth up 3.1% overall.

In the category of wearing apparel the difference is more marked, with factory production rising 10.6% in developing countries versus the second quarter last year, but falling by 1.6% in industrialised ones. World apparel output increased by 5.4% in the three-month period compared with the year before. From the first to the second quarter a noticeable change for developing countries has been a 1.3% drop in the production of wearing apparel, contrasting with a rise of 3.1% in industrialised nations. The worldwide rise is a marginal 0.2%. For the textiles sector, estimated quarter-on-quarter growth is 1.6% in developing countries, a drop of 1.1% in industrialised ones, and a rise of 0.7% for the sector as a whole.

Overall manufacturing trends

The report states that developing countries have maintained higher growth rates of manufacturing production, increasing by 11.1% overall in the second quarter. Their manufacturing value added is expected to grow by 8.4% in 2011. China has made the major contribution to this growth, with output increasing by 14.3% in the second quarter compared to the same period of 2010. Turkey's manufacturing output grew by 8.3%. Higher growth rates of manufacturing output were also observed in Latin American countries - Argentina (8.5%), Chile (7.8%) and Peru (5.8%). But in other major developing economies such as Brazil, India and Mexico, output slowed in the second quarter and remained below 5%. The manufacturing output of industrialised countries rose by just 2.7% in the second quarter compared to 5.4% in the first quarter. For the year 2011, MVA growth of industrialised countries is likely to be around 3.2%, researchers say.

The growth rate of production in the United States, the world's largest manufacturer, dropped to 4.4% in the second quarter from almost 7% in the first quarter. Manufacturing output growth rates fell in France, Italy and the United Kingdom. Germany maintained high growth of 9.4% in the second quarter. Manufacturing output fell by 10.8% in Greece and by 0.8% in Spain. Significant decline was observed in Japan after the natural disaster with its manufacturing output falling by 7%.

"During the years of the financial crisis and recovery period, developing countries significantly contributed to overall world industrial growth," the report says. "The consequences of the expected slowdown, especially in major developing and newly industrialised economies, could be significant, as they are likely to eventually result in a slower rate of growth of domestic demand, with further negative implications for the production of both consumer and capital goods.

"As the growth of manufacturing output in industrialised countries fails to recover in the wake of fiscal consolidation and turbulences in the sovereign debt markets, developing economies as a whole do not yet seem able to de-link and, hence, to maintain their driving role behind the growth of world MVA."

The article is originally published in The Stitch Times October 2011