Jordan: Industrial output up but prices down
It is not proper to deal with the industrial sector and pass judgement on its state of affairs as if it is composed of identical units. Every industry has its own specific set of circumstances. Some industries are on the rise, others in decline. Some industrial prices are high and rising but others may be low and cause painful losses. There is a lot of fierce competition in certain industrial activities and subsections and a sort of partial or total monopoly in others.
However, generalization continues to be useful to measure general trends which influence the national economy as a whole. In this respect, we shall try to examine the state of affairs of industrial producers as far as the volume of their output and the level of their prices are concerned. We shall depend on the monthly survey produced by the Department of Statistics, which is gaining in credibility, accuracy and promptness.
The latest figures depicting the quantitative industrial production, showed a substantial improvement in recent months, and in an accelerating pattern. The volume of industrial production in June, 2000 was 6.7 percent above the same month last year. The output in July was 12 percent above July, 1999. This is a positive phenomenon indicating that the industrial sector is now emerging from the recession, which has lasted for several years, and is entering a stage of recovery. The improvement was at its highest regarding manufacturing industries, where growth in July registered a record 15.6 percent.
While industrial producers were producing more, their prices, ex-factory, were decreasing. Last July, the industrial price index was 1.1 percent below the previous month, 1.4 percent below the level of prices in the same month one year ago, and 5.1 percent below prices two years ago, an obvious deflationary trend, that is not a cause of worry for industrialists only but for bankers as well, who fear for the deterioration of the quality of their credit extended to the industrial sector.
Several factors played a part in reducing the prices of industrial producers, the first of which is the shrinking of aggregate demand due to difficult economic situation in the country, the embargo on Iraq, and lack of access to the Palestinian market. The second is the strong competition which obliged factories to reduce profit margins in order to maintain their share of the market. The third is the substantial reduction of customs duty on industrial inputs as well as on finished imported products.
This unprecedented situation of having to reduce prices of products year-after-year have led to the unusual case of finding that growth in the industrial sector, calculated in constant prices, is higher than in current prices, which was something unheard of during inflationary years. Under the circumstances, no one can rule out the possibility that growth of gross domestic product (GDP) in fixed prices may be higher than in current prices, thus having a negative deflator for the first time, and having to replace deflator by an inflator to arrive at the real growth rate.
To increase output and decrease prices was one of the tactics adopted by Jordanian industrial managers in order for their companies to survive the difficult competitive situation they face. We may see more of this happening in the future. — ( Jordan Times )
Fahed Al Fanek