Letter IEDI n. 846–Industry in March 2018: one more month of stagnation
There is a good chance 2018 will bring more vitality and robustness to the recovery of the industry, since interest rates and inflation are at low levels, credit is beginning to flow again, the exchange rate is unlikely to appreciate and, in the external scenario, international trade is likely to accelerate. In addition, after so many years of crisis, companies and families are expected to start fulfilling their repressed demand.
It is true, however, that there is no lack of risk factors in the present scenario, both on the external and internal fronts. The elections are an example, as they may be accompanied by greater volatility of important variables such as risk premiums and exchange rates. Therefore, it would have been opportune if the industry had recorded a stronger dynamism from the beginning of the year.
In March, industrial production remained practically stable, varying -0.1% in relation to the previous month with seasonal adjustment. Considering the first quarter (Q1) of 2018 as a whole, we observe an absolute stagnation compared to the last quarter of 2017. In other words, there was no progress in the recovery of the sector during this period. Also worrying is that April could turn out to be another weak month, due to the relative deterioration of confidence indicators and March's excessive inventories.
Compared to March last year, the low growth rate (1.3%) was greatly influenced by the holidays, since in 2018 the month had two fewer working days. Nevertheless, there is also a loss of dynamism if we take the performance in Q1 as a whole, which tends to dilute the mentioned working-days effect. In this case, the 4.9% increase in Q4/17 declined to 3.1% in Q1/18, which was observed in almost all industrial macro-sectors.
It is worth noting that production growth in early 2018 could have been even weaker hadn't the industry had a good exporting performance in Q1. The quantum of exported manufactured goods increased 16.5% compared to a mere 1.9% in the last quarter of 2017. On the other hand, the figure for imports of raw materials for industrial use is compatible with the lower dynamism of the period: only +0.1% compared to Jan-Mar/17.
As for the macro-sectors, the only one that did not decelerate in the year-on-year comparison was capital goods (+10.8% in both Q4/17 and Q1/18), but neither did production of these goods advance any further. Many of its segments, however, did not resist and either lost momentum, as was the case of capital goods for the industry (from +4.8% to +1.0%) and for mixed use (from 24.9% to 18.0%), or registered negative rates, like capital goods for energy (-4.0%).
Durable consumer goods continue to be the strongest macro-sector, but even they did better at the end of last year (+17.9% versus Q4/16) than at the beginning of this year (+16.2% vs. Q1/17). Overall, the decline in performance was a small, but significant slowdowns occurred in the production of automobiles (from +22.9% to +13.2%) and other transportation equipment (+23.2% to +15.7%), which includes motorcycles. There are also those who have fallen again, such as large household appliances (-2.2% versus Q1/17).
In the case of intermediary goods, it was the first time, since the trough in Q1/16, that their result was lower than the previous quarter's in the inter-annual comparison. It fell from +4.0% in Q4/17 (compared to the same period of the previous year) to +1.7% in Q1/18. The slowdown could have been more intense were it not for the presence of exporting branches such as food and pulp and paper intermediaries, which boosted growth rates in the first months of 2018.
On the other hand, for semi- and non-durable consumer goods the pace of growth declined to less than 1/3 of the rate registered in the last quarter of 2017: from +2.8% to +0.8% in Q1/18. This resulted from the performance of several of its segments, notably fuels and footwear, textiles and clothing, whose recovery has been facing increasing competition from imported products.