In the purchasing departments across the large Galician industries, a cautious outlook has emerged. Executives note that raw material prices have softened for weeks, yet they warn the decline is not simply a temporary dip. The economy, they say, could slow rather than experience a mere price fluctuation. A senior executive in the automotive sector describes the situation as a bubble that cannot endure. In his own firms and in similar businesses, Faro de Vigo reports a medium-term scenario that points to a subdued cycle. It is believed this trend will be felt broadly across many sectors, including shipbuilding, according to the general manager of a supplier in that field.
Beyond the factory floor, economists describe a complicated picture. If the eurozone recession probability stood at about 20 percent before the Ukraine crisis, the latest assessments have pushed that probability toward a much higher footing. Bloomberg contributors, speaking this week, indicate a significantly elevated risk level not seen since the severe winter wave of the pandemic in 2020.
On the procurement side, there is a glimmer of relief from stronger raw material performance. Prices for key inputs such as steel have trimmed substantially. Early in the year steel hovered near 2,000 euros per tonne and has since fallen to around 1,500 euros. This easing is echoed by futures markets showing declines in aluminum, copper, and tin, alongside a softer Brent crude benchmark. The overall tilt suggests improved cost visibility for certain manufacturing segments.
However, not all components follow the same trajectory. There remains little evidence of reductions in the supply of intermediate goods. Lead times for engines, electronics, and vending equipment persist, signaling ongoing bottlenecks. As a result, sectors like automotive will continue to face supply constraints, closely tied to semiconductor shortages and evolving production schedules. The Stellantis Vigo plant, for instance, reported vehicle output the first half of the year well below prior peaks reached during the late 2000s and early 2010s.
In North America, a new Morgan study suggests that outages in some tech-related segments may ease during the second half of the year. The tailwinds come partly from improved productive capacity and softer demand for consumer electronics, computing devices, and gaming platforms. Yet the analysis also notes that a full market normalization appears unlikely before 2025, a point echoed by major industry players in Europe and elsewhere.
more factors
Even as lower raw material costs support heavy industry, numerous negative forces and uncertainties linger. Financing conditions have tightened, raising debt service costs for many firms. In the food sector as well, a slowdown is observable across major markets. One executive, overseeing a seafood business, observes a pullback not only in Europe but with notable impact in China too. A technical recession remains the working definition when two consecutive quarters show shrinking GDP.
In the United States, inflation remains elevated, driven in part by persistent input costs. If rainfall patterns falter and hydraulic production declines, energy pressures could spike. The industrial backbone of Germany and other European economies has felt the strain, while southern European nations anticipate debt-adjustment measures in the latter half of 2023. Across the board, Europe remains the primary customer for Spanish manufacturers, influencing regional demand and pricing dynamics.
Unlike prior downturns or periods of stagnation, Galician companies report robust order books. The shipping sector frequently notes strong demand and backlog. The dominant challenges now revolve around delivery times and logistics, with costs reaching levels that complicate planning. While households may trim spending in the warmer months, prices for automotive and seafood products stay elevated. Excluding fuels, inflation pressures appear unlikely to ease in the near term, with July Galician inflation pegged around the low double digits.