MANUFACTURERS ASSOCIATION OF ISRAEL - ECONOMICS DIVISION

Dept. of Economic Research and Strategy

Reports by industrialists for the third quarter of 2003 show that there was a substantial growth in the extent of industrial production, alongside a rise in sales, both to the domestic market, as well as for export. As against this, dismissals of workers continued and a freeze was recorded in the extent of investments in fixed assets. This is shown in an initial analysis of the survey of expectations in industry that was carried out in the second half of September and the beginning of October 2003, covering around 170 industrial companies.

For the last quarter of 2003 the industrialists anticipate an extremely moderate growth in industrial output as well as in the level of investments, accompanied by a further growth in the range of overseas exports.  On the other hand, the industrialists expect in the last quarter of the year a renewed drop in the domestic market and accelerated lay-offs of workers.  

In accordance with expectations, industrialists report that in the third quarter of 2003 there was a substantial increase in industrial output, following a retreat in output in the first two quarters of the year.  No such an increase has been recorded since the October 2000 survey, which dealt with the third quarter of 2000, prior to the outbreak of the intifada.  In the third quarter of 2003, 44% of the plants expanded their output and 26% of the plants reduced output.  An exceptionally sharp rise was recorded in the output of the rubber and plastics branches, food and electronics, alongside a certain rise in the chemical, mining and building materials branches.  As against this, the metals and electricity, textiles and apparel branches recorded a reduction in output. 

In parallel, the industrialists report a drop in stocks of finished goods and raw materials in the third quarter of 2003.  A reduction in stocks of finished goods was reported by 25% of the industrialists (of which 5% report a considerable drop), while 21% report an increase.  (Figures for the previous survey were 24% and 31% respectively).

The industrialists anticipate an extremely moderate rise in output for the last quarter of this year – 35% of the industrialists foresee a rise in output, of which  32% anticipate a small rise and 28% anticipate a drop in output.  Varying factors characterize the industrialists’ expectations:  while an extremely sharp rise is expected in the output of the electronics and food branches, accompanied by a rise in the chemicals, rubber and plastics branches, a recession in output is expected in the metals and electricity, textiles and apparel branches, with a freeze in output anticipated in the branches of mining and building materials.

In accordance with industrialists’ reports, dismissal of employees in industry continued in the third quarter of 2003, at a rate similar to that of the second quarter.  29% reported dismissals of workers in the third quarter of the year and 13% reported the absorption of new workers (of which 12% reported moderate absorption).  Varying factors also characterize the industrialists’ report with regard to the labor market:  while the electronics, food, rubber and plastics sectors report absorbing workers, the dismissal of workers continues in the branches of mining and building materials, chemicals, metal and electricity, and markedly so in textiles and apparel.

The industrialists estimate that dismissal of workers will also continue in the last quarter of 2003, at a somewhat accelerated pace – 27% of the industrialists plan to cut down the number of workers, while 6% plan to absorb new workers (the majority plan for moderate absorption).  Reductions in work force are anticipated in most industrial branches, with the exception of the electronics branch that plans to continue a moderate absorption of workers.  An exceptionally sharp drop is expected in the work force in the textile and apparel and food branches.

In the third quarter of 2003, for the first time since the outbreak of the intifada, a minor increase was registered in domestic sales, in accordance with industrialists’ expectations in the previous survey.   A rise in this section was not recorded since the October 2000 survey, that referred to the third quarter of 2000, prior to the outbreak of the intifada.  It may be assumed that the increase in sales to the domestic market during these months came about thanks to the positive atmosphere pertaining in the economy against the background of the cease-fire (Hudna).  36% of industrialists reported increased sales to the domestic market and 28% reported a drop  (Figures for the previous survey were 29% and 43% respectively).  There were increased sales to the domestic market in the following branches:  electronics, food, chemicals, rubber and plastics, accompanied by stabilized sales in textiles and apparel.  On the other hand, sales dropped in the branches of metal and electricity, mining and building materials.

Despite this, the industrialists estimate that the last quarter of the year will see a renewed drop in the extent of domestic sales, but more moderately by comparison with the period from the end of 2002 to mid-2003.   A drop in sales is anticipated by 33% of industrialists, with 25% anticipating a rise.  Differences characterize the industrialists’ expectations with regard to the local market:  while a sharp drop sales are expected in the branches of metal and electricity, rubber and plastics, mining and building, a sharp rise in sales is expected in textiles and apparel, food and electronics, accompanied by an expected freeze in sales in the chemicals branch. 

Exporters that participated in the survey report a slowdown in the extent of shipments abroad in the third quarter of 2003 – this is in accordance with expectations of the previous survey.   A rise in exports was reported by 43% of the exporters and 28% reported a drop (relative figures for the previous survey were 47% and 22%).  The growth in the extent of export shipments characterized most branches of industry, apart from the chemicals branch that registered a drop, and metals and electricity that registered a freeze.

Erosion in export profitability continued during the third quarter of 2003, at a significantly more moderate rate:  40% of exporters registered a drop in profitability and 6% registered an improvement (relative figures for the previous survey were 62% and 12%). 

Exporters participating in the survey expected that in the last quarter of 2003 the extent of export shipments would expand further.  At the same time, it is important to note that most of the industrialists replied to the survey prior to the strike in the sea ports.  It may be assumed that had they replied after the outbreak of the strike and its continuation, the expectations of at least some of the exporters would have shown a downward trend.  Of the exporters in the survey, 38% anticipated an increase in export shipments and 23% anticipated a drop.  A sharp growth of exports is expectedin the electronics, rubber and plastics and chemicals branches, while stability is expected in the extent of exports in the food, metals and electricity, textile and apparel branches. 

In the third quarter of 2003 there was a freeze in the extent of investments in fixed industrial assets.  22% of industrial plants increased their investments and 19% reduced them, of which 11% reported a significant reduction in their investments  (in the previous survey 22% reported an increase and 18% reported a drop).  Differences characterize the reports of the various branches regarding developments in the area of investments.  While increased investments were registered in the branches of mining and building materials, chemicals, rubber and plastics, a freeze was registered in the

food, textiles and apparel branches and a drop in investments was registered in the electronics and metal and electricity branches.

assets and 17% anticipate a drop. Differences also characterize industrialists’ expectations for the end of the year:  while increased investments are expected in the mining and building materials, textile and apparel, rubber and plastics and chemicals branches, a drop is expected in the electronics, metal and electricity branches, and a freeze in investments is anticipated in the food branch.