Gloomy outlook for the second quarter
Norwegian industrial managers report a fall in the total production volume in the first quarter of the year. The general outlook for the second quarter of 2020 is characterized by pessimism and great uncertainty by the majority of industrial leaders related to the corona pandemic.
- Full set of figures
- Business tendency survey for manufacturing, mining and quarrying
The business tendency survey for the first quarter of 2020 shows a decline in total output compared to the fourth quarter of 2019. There are in particular the producers of capital goods that report lower production, but also producers of consumer goods report a decline. The picture for the producers of intermediate goods stands out as they report moderate growth in production volume compared to the previous quarter.
The total industry employment also shows a decline in the first quarter of 2020. This is a direct result of the covid-19 situation that is currently being experienced. Producers of both capital goods and consumer goods are reporting decreased employment, while producers of intermediate goods report unchanged employment.
Figure 1. Production and employment for manufacturing. Changes from previous quarter. Smoothed seasonally adjusted
|Turning point value||Total volume of production||Average employment|
Lower level of new orders, but increased prices
Overall, there was a significant decline in new orders in both the domestic and export market in the first quarter of 2020. Producers of all three main industrial groupings report a decrease in new orders received in both the home and export markets. However, it is in particular manufacturers of capital goods that report the largest drop in new orders.
The decline in new orders among producers of capital goods may be due to the low growth of new investment projects from the petroleum industry this winter. Low economic growth among Norway's most important trading partners, particularly in the Eurozone and the United Kingdom, has contributed to lower demand for Norwegian export companies. Therefore, producers of intermediate goods have reported a decline in new orders received from the export market in four consecutive quarters. The strongest drop in export orders is seen in the industries basic metals and paper and paper products. Global implementation of infection control measures in the latter half of the first quarter have contributed to amplify the fall in export orders in the manufacturing sector.
The decline in new orders also resulted in a drop in total stocks of orders within capital goods and intermediate goods in the first quarter of 2020. The total stock of orders for producers of consumer goods is roughly unchanged.
Figure 2. New orders received for manufacturing. Changes from previous quarter. Smoothed seasonally adjusted
|Turning point value||New orders received from home markets||New orders received from export markets|
There is still growth in the price level both in the home and export market for overall manufacturing. Producers of intermediate and consumer goods, in particular, report increased export prices. Price growth in the export market is partly related to the devaluation of the Norwegian currency in the first quarter, as well as the fall in oil prices and due to the uncertainty related to the corona pandemic. Price growth in the home market is reported for all types of goods, but higher prices are reported especially among consumer goods manufacturers
Figure 3. Prices on products for manufacturing. Changes from previous quarter. Smoothed seasonally adjusted
|Turning point value||Prices on products at home markets||Prices on products at export markets|
The covid-19 situation strongly affects the outlook for the second quarter of 2020
The general outlook for the second quarter of 2020 is strongly 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 second quarter. This pessimistic view is shared by leaders within all branches, but the general assessment is most negative among producers of capital goods.
Within the capital goods segment we find several industries that deliver goods and services to the Norwegian oil and gas sector. The sharp fall in oil prices in the first quarter may force cuts in oil investments, which can result in a large drop in the total stock of orders for these industries. This combined with the national and global pandemic measures can have a severe negative affect on establishments within these petroleum-related industries. An additional aspect is that these industries are relatively labor intensive. Strict infection control rules and quarantine of employees are also reported as a cause that can contribute to lower activity. This particularly affects the use of foreign labor due to travel restrictions and closed borders.
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; a significant decline is expected in the second quarter of 2020 for manufacturing as a whole.
Figure 4. General judgement of the outlook in next quarter for manufacturing
|Turning point value||Smoothed seasonally adjusted|
Fall for the industrial confidence indicator
The industrial confidence indicator for the first quarter of 2020 was -17.5 (seasonally-adjusted net figures). The indicator is down from -0.2 in the previous quarter. This is well below the historical mean, which is calculated to 3.0. The indicator has not been so low since the financial crisis in the fourth quarter of 2008.
The drop of the industrial confidence indicator is clearly linked to the measures that have been introduced to prevent infections due to the corona pandemic. This has led to a sharp decline in the total stock of orders in the first quarter, and industry leaders now also expect a sharp fall in production volume for the next quarter of 2020. Producer of capital goods and intermediate goods are the main contributors to the fall of the industrial confidence indicator.
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.
1 Industrial confidence indicator is the arithmetic average of the answers (balances) to the questions on production expectations, total stock of orders and inventories of own products (the latter with inverted sign).
Figure 5. Industrial confidence indicator¹
|Seasonally adjusted||Average 1990-2020|
Negative signals and uncertainty from factors limiting the production
The share of managers reporting that weak demand and strong competition were limiting factors for production increased somewhat in the first quarter of 2020. The number of leaders who report that a lack of qualified labour is a challenge in order to increase production further, continued to fall in the first quarter of 2020. This indicator also showed a decline before the pandemic, but the decline is now being amplified by the infection control measures.
The average capacity utilisation for Norwegian manufacturing is lower than the previous quarter, and was calculated to 77.2 per cent at the end of the first quarter of 2020. This is below the historical average of 80.1 per cent. International comparisons of average capacity utilisation are available from Eurostat (EU).
Figure 7. Capacity utilisation in per cent for manufacturing
|Smoothed seasonally adjusted||Average 1990-2020|
The survey data was collected in the period from 6 March to 21 April 2020.