Sector's insights

Current uncertainties for industry

27 de October de 2022

  • Rising industrial prices due to higher energy prices, factory shutdowns due to a lack of microchips, inflation that is starting to become more generalised and rising interest rates are putting pressure on the global economy. How have we arrived at this situation and what can industry do to deal with it?
  • The United States has been among the first to announce a period of technical recession with two consecutive GDP declines. On the European side, the worst placed is Germany, which is heading for a recession due to the weakening of an industrial sector that is a strategic element of its GDP. Regardless of whether there will be a global recession or not.

Gas as a key element

Gas consumption has begun to fall sharply, forced by the current situation with Russia and efforts to reduce our dependence. Spain’s gas consumption fell by 34%, France’s by 12.1%, Italy’s by 9.9% and the UK’s by 9.6% in July and August compared to the same period last year. The question is what will happen now in winter, when there is greater pressure on gas supply. There are already industries that are being forced to temporarily stop production at some of their production centres because they cannot afford the extra energy costs.

The wholesale gas market, used mainly for industry, has risen by 1,000% since the middle of last year. Gas in Europe’s benchmark market, TTF, has gone from 20 euros per MWh to over 300 euros per MWh this summer. Right now it is around 114 euros per MWh. The situation spiralled out of control after the outbreak of Russia’s war in Ukraine and intensified after Russia stopped shipping gas to Europe in August, followed by the recent Nord Stream leaks.

Some costs are starting to come down

Inflation and the steady rise in prices seems to be giving a small respite, according to the latest data from the INE, industrial production prices rose by 35.6% y-o-y in September, down from a 42.9% y-o-y increase in August.

Moreover, certain industrial materials are beginning to leave behind the price increases experienced in recent months. Data from the International Monetary Fund (IMF) for July reflect a drop in prices for aluminium, zinc and nickel, whose indices have decreased with respect to the previous month by 6.5%, 15% and 17%, respectively.

The prices of most industrial raw materials are also falling, accompanied by a decline in the cost of containers carried by commercial vessels. According to the World Container Index, the value of transporting a 12-metre container has fallen by 35%, caused by the revival of total work in the world’s major shipyards, which were previously subject to bottlenecks with the post-pandemic industrial revival.

Future of the industrial sector

Dependence on key strategic sectors such as semiconductors, energy and certain materials that are fundamental to industry makes the recovery a “can’t and won’t” situation. Countries such as Germany, Italy or France estimate their growth in 2023 at less than 0.5%, due to the weakening of their export sector due to the reduction in global demand, and to the increase in interest rates. In aspects common to all eurozone members, the economy will be affected by the same reduced demand and by the energy crisis.

With very restricted industrial activity, Spain faces 2023 with uncertainty. Experts put growth at 0.1%, a percentage that would be enough to avoid recession, at least for the time being.

Focusing on the short and medium term, the outlook for the industrial sector is uncertain. The instability prevailing in the market is causing investment to freeze, and is beginning to slow down some complementary activities in order to face a winter with energy as the main stumbling block to recovery. It is likely that only a real regulation of the energy market at European level, with a firm commitment to renewables, and specific public support will help to prevent the feared risk of recession.