Letter IEDI n. 1235—A quarter of modest performance
September was a month of low dynamism in all major sectors of the economy, according to IBGE's surveys. Industrial output changed only 0.1% compared to Aug'23, after seasonal adjustment, while retail real sales and services revenue registered 0.2% and -0.3%, respectively.
Thus, knowing the result of Sep'23, we can already have an idea of economic performance in Q3'23. In sum, it was not good, although some accommodation was already expected vis-à-vis the performance of the first half of the year. In relation to Q2'23, adjusted for seasonal effects, the industry and retail trade were flat, that is, registered a zero growth rate. On the other hand, services varied only 0.1%.
While the official IBGE GDP data is not published, we draw attention to the performance of the proxy calculated by the Central Bank, the IBC-Br indicator: -0.6% compared to the previous quarter. The Ministry of Finance, in its last Macro Fiscal Bulletin, expects a result of 0% in Q3'23 (seasonally adjusted).
In other words, after the impulse derived from the agricultural super harvest at the beginning of the year, which was indeed expected to dissipate rapidly due to the low macroeconomic multiplier of the sector, and the normalization of service activities with the overcoming of the COVID-19 pandemic, the Brazilian economy has been lacking sources of dynamism.
The negative effects of a state of high interest rates are also present, notably harming activities associated with durable goods, such as the industry and some branches of retail trade.
Compared to last year, the industry's physical output avoided a negative rate, but it did not grow. It recorded 0% in Q3'23, with capital goods (-14.1%) and durable consumer goods (-1.1%) as its worst cases. Regionally, half of the industrial parks registered production losses; among them are prominent parks in the Southeast and South regions and the Northeast.
Services, which had been leading the expansion in the first half of the year, hit the brakes. The 5.5% increase in Jan–Mar'23 was followed by a 1.0% variation in Jul–Sep'23, due to decelerations in all branches monitored by the IBGE. Much of this was due to transport, postal services and storage (+6.4% in Jan–Mar'23 and -0.4% in Jul–Sep'23) and also to other services (-2.4% in Q3'23), a branch that includes a diverse set of activities, such as financial, urban, real estate services, etc.
Retail trade did not fare poorly compared to last year, thanks to the slowdown in inflation, improvement in employment and the vehicle tax reduction program. These factors have boosted branches of great weight in the sector.
In its broad concept, retail registered 3.0% in Q3'23, better, therefore, than in Q1'23 (+2.5%) and Q2'23 (+1.8%). Its main drivers were sales of vehicles and auto parts, which grew +9.9% in relation to Q3'22, and supermarkets, food, beverages and tobacco, with an increase of 5.4% in the same comparison.
Even with the better dynamism of retail, the slowdown in industry and services led the Central Bank’s indicator to register a variation of only 0.8% in Q3'23 versus Q3'22 for the country's economic activity, after increases of 4.5% and 3.2% in the first two quarters of the year, respectively.
This more modest performance in the second half of the year led to a reduction in the projection for Brazilian GDP in 2023. The Ministry of Finance revised the 2023 GDP result from 3.2% to 3.0% in its last bulletin. The median of the projections collected by the Central Bank's Focus Survey was 2.85% in its most recent edition compared to 2.92% a month ago.