Letter IEDI n. 1048–Industry in the final stretch of 2020
After leading the GDP revival in Q3/20, the industry maintained its growth trajectory at the beginning of the last quarter 2020, according to the most recent IBGE monthly data for industrial production, leading to an improvement in the confidence of the sector's businesspeople. The continuity of this process is important because the industry is still far from what it was before the 2015/2016 crisis.
Judging by October's result, however, the sector may experience some accommodation at the turn of the year, already reflecting, among other factors, the decrease in the emergency aid to families. In Oct/20, the general industry’s output increased +1.1% versus Sep/20, seasonally adjusted. In other words, in this sixth month of recovery, the pace of growth fell by half compared to the previous month.
Some deceleration was expected, since the bases of comparison are getting bigger, but the fact that 42% of the industrial branches are still below pre-crisis production levels suggests that this behavior may be happening too soon, if it continues in the coming months.
The month of Oct/20 was also the first time that not all industrial macro sectors were able to register an increase in production. Half of them was in the red, although very close to stability. Among the 26 branches monitored by the IBGE, 11 did not grow in relation to Sep/20.
Intermediate goods (-0.2%), the core of the industrial system—producing inputs and components for other activities—remained with unfavorable results. So did semi and non-durable consumer goods (-0.1%), which tend to gather branches that are more labor-intensive and better distributed across the national territory.
The latter macro-sector was strongly influenced by falls in the sectors of beverages (-0.3%), food (-2.8%) and perfumery, soaps and cleaning products (-4.2%), catalyzing, in addition to the reduction in the emergency aid, price increases in some of these products, especially food. As a result, the macro-sector as a whole was practically at the same level as Feb/20 (-0.1%), that is, prior to the COVID-19 shock.
In intermediate goods, the virtually flat rate of Oct/20 came with output already above the pre-pandemic level (+3.0% compared to Feb/20) and four months ago it was at levels higher than those of the same period of 2019. Compared to Oct/19, the figure was +3.2%.
In fact, the recently observed production chains bottlenecks occur precisely in many branches of intermediates, a result of the misalignment between companies' expectations and the effective evolution of their markets. This was aggravated by the existence of low inventory levels, which reduced the resilience of the chains. Among the branches with the lowest stocks are textiles, metal products, plastic material and non-metallic minerals. According to CNI data, 92% of the industrial sectors have below-planned inventories.
Among the macro-sectors whose output increased from Sep/20 to Oct/20, durable consumer goods registered +1.4%, after seasonal adjustment, but this implied an important loss of pace, since it had grown more than +9% both in Aug/20 and Sep/20. It should be emphasized that this fraction of the industry has not yet returned to the pre-crisis production level, being 4.2% below Feb/20.
Capital goods, in turn, managed to maintain the recent pattern of growth, with +7% in the seasonally adjusted series. As a result, they were 3.5% above the pre-crisis level. Performance was also positive (+2.1%) in relation to Oct/19, despite the adverse number-of-working-days effect (Oct/20 had 2 fewer than Oct/19). Good results came from capital goods produced for the industry itself, for construction and for agriculture.
Thus, the most recent edition of the Central Bank's Focus Bulletin, with expectations collected on Dec 04, indicates a 5% contraction of industrial production in 2020 as a whole. If it comes to pass, this performance will not be worse than only those of 2015 (-8.3%) and 2016 (-6.4%). For industrial GDP, the recent projection is -3.9% compared to -3.4% at the end of November, when a sequence of successive improvements started in early Aug/20 was interrupted.