Letter IEDI n. 1229—Signs for the second half of the year
In Aug'23, the country's level of economic activity contracted, driven by the drop in sales of services and retail trade. This time, the industry avoided the negative terrain but, as has been the rule, its expansion was weak and did not compensate for the results of the other sectors.
While industrial production varied +0.4% in relation to Jul'23, after seasonal adjustment, broad retail shrank 1.3% and services registered -0.9%, on the same basis of comparison. As a result, the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, fell 0.77%, offsetting the highs of Jun'23 (+0.22%) and Jul'23 (+0.42%).
Thus, considering the performance in Jul–Aug'23, the third quarter of the year seem to have been marked by a slowdown. After registering +4.4% in Q1'23 and +3.1% in Q2'23, always in relation to the same period last year, the Central Bank's indicator registered 1.1% in Jul–Aug'23. This pattern was seen in almost all major economic sectors.
In the case of the industry, the performance of the last two-month period covered by IBGE data signals another quarter in the red. Its total output shrank, respectively, 0.4% and 0.2% in the first two quarters of 2023 and 0.3% in Jul–Aug'23, always in relation to the equivalent period of the previous year.
Signs of lower dynamism were seen in three of the four industrial macro-sectors, notably those whose markets depend more on credit and, therefore, are more affected by the high levels of interest rates practiced in the country. This is the case of capital goods, whose pace of decline is intense: -12.5% in Q2'23 and -16.1% in Jul–Aug'23, and of durable consumer goods, whose 2.6% expansion in Q2'23 was succeeded by a variation of -0.1% in Jul–Aug'23.
Regarding the regional industry parks, it should be noted that 61% lost production in Jul–Aug'23, but the signs of worsening seem less widespread geographically: in 39% of them the result of these last two months was worse than that of Q2'23. For another 39%, there were signs of improvement and for 22% the performance of Jul–Aug'23 was very close to that of the previous quarter.
In the case of services, the deceleration is influenced by the robustness of the bases of comparison, but also by other factors, such as services inflation remaining above the general IPCA and the population's purchasing power remaining constrained by the levels of debt and the high interest rates, which affect, first and foremost, the goods market but which, sooner or later, also impacts services.
The 2.2% rise in Jul–Aug'23, versus the same period of the previous year, is well below the +4.0% in Q2'23 and the +5.5% in Q1'23. Among the branches with the greatest loss of dynamism are services provided to households (from +8.1% in Jan–Mar'23 to +1.9% in Jul–Aug), transport (from +6.4% to +0.6%) and other services (from +0.5% to -1.3%). The exception was professional, administrative and complementary services, whose growth has been steady around +4.5%.
Retail is the exception among the sectors. Its real sales, considering the broad concept of retail trade —which includes vehicles, auto parts, construction material and wholesale-retail— advanced 5.1% in Jul–Aug'23, indicating a higher level of activity at the beginning of the second half of the year than at the end of the first half. In Q2'23, the figure was +4.6%.
Only two branches are working as bedrocks for retail in recent months, avoiding a weaker performance: supermarkets, food, beverages and tobacco, and vehicles and auto parts, which together represent about 50% of the sector in the IBGE monthly survey.
In the case of supermarkets, food, beverages and tobacco, sales increased 4.3% in Jul–Aug'23 compared to 2.6% in the first two quarters of the year. In addition to including essential items of households consumption basket, the branch also saw a reduction in inflation of important products, such as food for domestic consumption (-1.82% in Jan–Aug'23)
In the case of sales of vehicles and auto parts, it is worth remembering the federal government's tax reduction program, whose aim was to boost sales in the sector. Although this stimulus has not yet reached the production of the automotive industry, retail sales jumped +10.3% in Jul–Aug'23 in the year-on-year comparison, vis-à-vis 5.8% in Q2'23.