Letter IEDI n. 1009–The economy under the influence of COVID-19
In Brazil, April 2020 was the first month fully under the effects of the COVID-19 pandemic, whose rapid contagion required the adoption of measures to reduce mobility, increase physical distance and promote social isolation around the world.
The data released by the IBGE for the month show the seriousness of the economic impact of these measures, as well as the fear of unemployment, the loss of income in many families and the sharp increase in uncertainty that accompany the health crisis. Compared to March, the industry decreased -18.8%, broad retail trade -17.5% and services -11.7%, adjusting for seasonal effects.
The declines in Apr/20 were record breaking, deepening the fall that had already marked the scenario in March. Thus, by now, the coronavirus crisis has caused intense losses for all major economic sectors: -29% for broad retail, -26% for the industry and -18% for services.
In other words, no one is entirely out of the woods: regardless of an activity being more or less labor-intensive, regarded as more or less essential, or else having greater or lesser capacity to resort to teleworking or online sales, its performance has been hampered by the pandemic. In addition to being intense, the COVID-19 crisis is also of great magnitude.
The Central Bank, through its IBC-Br index that acts as a proxy for GDP, estimates that the general level of economic activity decreased by 9.73% from Mar/20 to Apr/20, with seasonal adjustment. As a result, the pandemic may have caused a loss of 15.3% to the economy between Feb/20 and Apr/20.
Although many services and retail companies have shut down due to social isolation measures, it was the industry that registered the worst performance in April. Much of this is due to the anticipation of vacations and lay-offs in important sectors, such as the automobile industry, in response to falling demand, but also to the need to define and implement health and safety protocols.
In any case, the industrial decline was widespread: it reached 84% of the branches and 87% of the regional parks monitored by the IBGE. All industrial macro-sectors were in the red, with durable consumer goods (-79.6% compared to Mar/20) and capital goods (-41.5%) with the most intense falls.
Regionally, double-digit drops predominated in Apr/20, reaching more than 90% of the areas with negative rates, and more than half of them did worse than the average for Brazil. The areas with abrupt losses include the industry of Amazonas (-46.5%), the Northeast as a whole (-29%), Paraná, São Paulo (-23.2%) and Rio Grande do Sul (-21%).
Like the industry, in retail trade the most adverse results (in relation to March) were in branches that sell durable goods, whose consumption normally requires access to credit and can be postponed by families in moments of low confidence levels. These were the cases of vehicles and auto parts and office and computer supplies, but also of other articles for personal and domestic use, which include sales of department stores, and fabrics, clothing and footwear.
Retail segments that sell non-durable goods, many of which are considered essential, fell at a similar pace to total retail, as was the case of supermarkets, food, beverages and tobacco (-11.8%). The only branch to show only a moderate decline was construction material (-1.9%), whose activities were not interrupted by the pandemic.
In services, the contraction was also extensive, reaching all five segments. Two of them lead the losses with a wide advantage: services provided to households (-44.7%, seasonally adjusted) and transport services (-17.8%), directly impacted by the lower mobility of people but also indirectly by the reduction in the general level of economic activity.
On the other hand, although also in the red, the performance of the other branches of services was less dire. This is because many of these activities are either better adaptable to teleworking or find additional demand due to social distancing. These are the cases of information and communication services and professional, administrative and complementary services.