Worldwide prospects for the metal industry

Edited by STIG JUTTERSTRÖM The metal industry is an important component of the world economy. In sub-branches such as metal production, non-electrical machinery, electrical machinery and transport equipment, it employs approximately 70 million workers worldwide, who account for nearly half of the goods produced in the manufacturing industry and more than half of all merchandise exported worldwide. 22 million of these workers are members of trade unions affiliated to the International Metalworkers' Federation (IMF). The research institute Prognos AG in Basel has made an analysis of the development of the metal industry from 1987 to 1997 and quantitative forecasts for production and employment trends up to the year 2005. The IMF special report highlights some of the main findings of the Prognos report, commissioned by the IMF. THE IMPORTANCE OF THE METAL INDUSTRY The importance of the metal industry within the framework of the manufacturing industry is extremely great in all parts of the world. However, there are differences depending on the level of industrialisation and the income levels in different countries. In North America and Japan, the metal industries accounts for over 50 per cent of total production by the manufacturing industry. In the developing countries, the corresponding figure is 36 per cent. In the industrialised countries, employment in the metal industry represents some 47 per cent of total employment in the manufacturing industry and 18 per cent of those gainfully employed overall. The corresponding figure for Germany, 57 per cent, is well above half of those employed in the manufacturing industry. When we look at the metal industry's share of employment and added value of total manufacturing and economy, we see clearly that productivity in the metal industry is slightly higher than average in the manufacturing industry but much lower than in the overall economy. This is due to very high productivity rates in the mining, energy supply and financial sectors. TWO SUB-CATEGORIES In the Prognos report, the metal industry is broken down into the sub-categories Metal production (iron and steel, non-ferrous metals) and Metal processing (metal goods, non-electrical machinery, electrical machinery, transport equipment, fine mechanics). The production and first handling of metals accounted for 12 per cent of overall added value in 1996. 88 per cent of added value was produced in the field of metal processing. The production of basic metals and their initial processing is therefore of less importance for the overall production value of the metal industry when compared with processing, i.e. the manufacturing of metal goods. The most important branches of the metal industry, on an individual basis, are non-electrical machinery (value-added share in 1996 -- 27 per cent), electrical machinery (25 per cent) and transport equipment (19 per cent). EMPLOYMENT STRUCTURE Worldwide, 85 per cent of all the 70 million metalworkers are employed in metal processing and only 15 per cent in metal production. The regional employment structure reflects production differences between the various parts of the world. Although only 42 per cent of all metalworkers are employed in the OECD (Organisation for Economic Cooperation and Development) countries, they account for some 87 per cent of value added worldwide in the metal industry. In contrast, the 40 million metalworkers in the non-OECD countries account for only 13 per cent of value added. In China, the some 22 million metalworkers represent almost one-third of all those in the metal industry, but China's share of added value is less than 2 per cent. This means that metalworkers in OECD countries are on average ten times more productive than metalworkers in non-OECD countries. Chinese metalworkers are about 6 per cent as productive as the world average. PRODUCTION STRUCTURE Between 1987 and 1997, worldwide production in the metal industry posted average annual growth of 3.2 per cent. The OECD countries' growth was lower than average, with an annual increase of 3 per cent. Growth impulses were stronger in the developing countries, in particular in Asia and South America, which were able to increase their production by an annual average of 5.7 per cent. Up to 1989/90, the metal industry was able to post gains as a result of a growth phase in the world economy. When the OECD countries entered a recession which lasted until 1993/94, metal industry production declined. It was only at the start of a steady growth phase in North America and later in other OECD countries that production in the metal industry really started moving again. In contrast, production increased on a very steady basis in the developing countries. See Figure 3. IS NOT READY; HAS TO BE DONE. Production in the metal industry rose between 1987 and 1997, but employment moved in the opposite direction. It fell by a yearly average of 0.4 per cent. See figure 4. Employment trends in different countries and regions are the combined result of production and productivity increased. In the OECD countries, except in the Republic of Korea, Ireland and Turkey, jobs were lost. In Asia, except in Japan, jobs were created with an above-average annual production increase of 1.2 per cent. Growth was concentrated in Indonesia, South Korea, Malaysia, Taiwan, Thailand and Singapore, where employment rose by an annual average of 6.2 per cent. In Central and Eastern Europe, some 4 million jobs were slashed in connection with the process of transition. FORECASTS UP TO THE YEAR 2000 What are the forecasts for the future? It of course depends on conditions which we don't recognise today. The Prognos report contains some assumptions which lead to the following forecasts. The average annual world trade growth is estimated at 5.6 per cent from 1997 to 2005. World trade will expand faster than world production, and the developing countries will become more important for the world economy. International competition is expected to remain keen. For the metalworking companies in the leading industrialised countries, it will be necessary to concentrate on the production of goods that can be produced on a capital- or human capital-intensive basis. World economic growth will return to almost the rate posted from the mid-80s to the mid-90s. Rates for 1997 to 2005 should average around 3 per cent per year. In the industrialised countries of North America and Europe, annual growth rates of 2.6 per cent and 2.5 per cent respectively will lag less behind the world average as has been the case over the past decade. The US will in all likelihood remain the frontrunner. Although economic gaps in Western Europe will narrow, they will not disappear altogether because the Europeans find it difficult to bring EU expansion into line with EU deepening. Due to necessary domestic reforms, Japan is making slow progress. The former East bloc countries are expected to post below-average growth rates. There will be significant differences between countries like Poland, Hungary, Czech Republic, Slovakia, Slovenia and the Baltic States on the one hand and Russia and the CIS (Commonwealth of Independent States) countries on the other. As a group, the developing and emerging countries in Asia, with average growth of 4.1 per cent, offer the most favourable economic prospects. The trend will continue at the fastest rate in China. The South American countries will have more restrained growth. PRODUCTION TRENDS Metal industry production worldwide between 1997 and 2005 is expected to show average growth of 2.8 per cent per year. The Asian countries will recover slowly from the dramatic collapses which occurred during 1998 crisis. The effects of the Asian crisis can be felt also in South America. But above-average growth is expected in the metal industry for the period after 2001. In North America, the boom will peter out only slowly. On the other hand, production growth in Europe will pick up and run at a higher rate throughout the entire period than in the past. It cannot be assumed that the Central and Eastern European countries will further increase their market share worldwide. The main obstacle is the poor growth outlook for Russia. The African continent will not become more important during the period as a production site or a marketing area. EMPLOYMENT TRENDS The position and importance of the metal industry for the world economy will remain high during the period. Its products are future-oriented and will benefit from long-term demands. But employment will continue to decline. Between 1997 and 2005, it is estimated that there will be an average decline in employment of 0.7 per cent per year. In the major OECD countries, past trends will continue more or less unchanged. Employment in the metal industry will decline, but trends are expected to diverge in the individual countries. Japan has been hardest hit by the Asian crisis and the decline in employment will be significantly larger than between 1992 and 1997. In the US metal industry, new jobs were created between 1992 and 1997. A trend reversal is expected to the year 2005. The outlook is more positive for Europe, where decline in employment will slow down. AUTOMOBILE INDUSTRY With 7.7 million employees worldwide, the automobile industry is one of the largest branches of the metal industry. It is of great importance but it is not a dynamic growth market. Production growth will be lower than past growth and will thus be less than growth for the metal industry as a whole. Employment is not expected to rise as it did between 1987 and 1997. The auto industry is expected to show an average decline in employment of 0.7 per cent per year, in other words a loss of 400,000 to 500,000 jobs. In North America, a decline in employment of one per cent is expected. In the EU countries, the trend is the opposite. In Latin America, employment in the auto industry in the year 2005 is expected to be more or less the same as in 1997. In Central and Eastern Europe, trends are marginally more positive. In Asia, fewer people will work in the auto industry in 2005 than in 1997. China has most autoworkers in the world. As the productivity of the some 2 million employees is very low in comparison to other countries, productivity is expected to rise sharply and, as a result, employment to decrease. RADIO, TV AND COMMUNICATIONS INDUSTRY The radio, TV and communications industry employs some 6 million workers worldwide. This branch is subject to very dynamic and rapid change. In terms of employment, it is somewhat less important than the auto industry. But a look at the production increases shows that this branch is one of the growth locomotives for the metal industry. Market trends in the 90s are characterised by varying trends in the individual market segments. The communications and electronic parts segments recorded above-average growth due to product innovations and the liberalisation of telecommunications markets in Europe and the US. The branch is also characterised by keen international competition. Production in this branch is expected to increase by an annual average of around 6 per cent, a slower pace than in the past but faster than in the metal industry overall. Employment is expected to decline between 1997 and 2005 by some one per cent per year on account of the very high productivity increases. However, it is to be expected that the branch will continue to be a growth locomotive in terms of production trends within the metal industry. And the metal industry will remain a driving force for the world economy. The full report will be published later this year.