Letter IEDI n. 1037–Recovery and its obstacles
The Brazilian economic recovery continued in August 2020, after the shock caused by COVID-19 in March and April. This process, however, does not occur without important obstacles, such as the still necessary presence of health security protocols, disruptions in the production chains and a weakened demand due to high unemployment and great uncertainty. The reduction in the amount paid as emergency aid will be another challenge to be dealt with in the coming months.
Among the major sectors of the economy, retail trade grew the most in Aug/20 in relation to Jul/20, registering +4.6% in its broad concept, with seasonal adjustment. In addition to the possibility of resorting to online sales, the progressive relaxation of social isolation, the reopening of points of sale and changes in consumption baskets— in favor of household goods at the expense of certain services—have been decisive.
The industry followed, with a +3.2% increase in physical production in the seasonally adjusted series. Although Aug/20 was its fourth consecutive month of growth, the sector recorded a clear slowdown (+8.3% in Jul /20). The loss of industrial strength was quite widespread, characterizing the trajectory of all of its macro-sectors—notably, capital goods—and 73% of regional parks.
This accommodation reflects greater bases of comparison and other fragility factors. Also, it has started despite the industry not being back yet to the pre-COVID-19 crisis production levels and before the reduction in the value of the emergency aid program. Given such behavior, let's hope this is not the beginning of a new phase of low growth.
The services sector, whose real sales grew +2.9% in Aug/20, is going through a weaker and more recent recovery than the industry and retail. It is worth remembering that not all of its activities were authorized to operate and that, in cases that require greater physical proximity, consumers are reticent, for fear of COVID-19.
In Aug/20, only 2 of the 5 branches of services identified by the IBGE saw results improve: services provided to households and transport, precisely those with the lowest bases of comparison and which benefited the most from the recent easing of social isolation.
Due to the deceleration of the industry and the limited recovery of services, the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, showed a variation of +1.06% from Jul/20 to Aug/20, after the elimination of seasonal effects. It is a positive result, as it indicates a reactivation of the economy, but we should note that this is the lowest rate since growth resumed in May.
Thus, in Aug/20 the general level of economic activity captured by the IBC-Br index was 4.2% below that of Feb/20, previous to the COVID-19 shock. Much of this was due to the greater gap in the service sector, which was 9.8% below Feb/20. If the industry had maintained its growth pace, it would have closed its gap, but with the slowdown it remained 2.6% below the pre-crisis output level.
The only sector that has already completed this stage is retail trade, whose Aug/20 real sales were 8.2% above those of Feb/20, in its narrow concept, and 2.2% higher in its broad concept, which includes sales of vehicles, auto parts and construction material.
These differences are also noticeable across the different segments of the industry, retail and services. When comparing Aug/20 to Feb/20, three retail segments top the performance ranking: furniture and household appliances (+24.2%), construction material (+19.2%) and other articles of personal and domestic use (+12.3%).
The best positioned industrial branches occupy the fourth to seventh positions, starting with computer equipment, electronic and optical products (+11.5%), followed by the extractive industry (+9.5%), furniture (+8.0%) and beverages (+6.0%). Among those farther from the pre-COVID-19 level are vehicles (-22.4%) and clothing and accessories (-31.0%).
Service segments are at the bottom, with air transport coming last at a level 52.8% below that of Feb/20, and accommodation and food services provided to households 43.9% lower than the pre-crisis figure. The special set of tourist activities calculated by the IBGE, which encompasses services classified in these two branches, has a lag of -47.7%.