Letter IEDI n. 848–Recovery: slow and discontinuous
The ongoing Brazilian economic recovery has not only been slow but has also not consisted of a continuous process so far; that is, it results much more from one or another period of concentrated improvement than from a movement of progressive increase in dynamism. It is a modest recovery that goes on with some bumps.
The transition from 2017 to 2018 illustrates this lack of continuity. After a particularly favorable quarter at the end of last year, when the industry and retail trade reached the highest growth rates since recovery began and services gave hints of moving back to the black, the economy lost its way in the first quarter (Q1) of 2018.
In relation to the final quarter of last year and after eliminating seasonal effects, the first three months of 2018 brought a new fall to services (-0.9%) and stagnation to the industry (0%). Only retail was able to grow (+0.7% in the narrow concept and +1% in the broad concept), but it must be said that the sector had better days in 2017.
Against this backdrop, it is possible that GDP has remained stable or even declined in the first quarter of the year. This is suggested by the IBC-Br indicator of the Central Bank that, despite following a different methodology, works as a proxy for GDP. In comparison with Q4/17, this indicator registered the first decline since the last quarter of 2016: -0.1% in Q1/2018, seasonally adjusted.
The loss of economic dynamism also appears in the interannual comparisons. In this case, industrial growth lost strength at the start of 2018 (from +4.9% in Q4/17 to +3.1% in Q1/18), interrupting, for the first time since Q2 of last year, a sequence of increasingly robust results. Services, which practically never left the negative ground, sank again (-0.1% in Q4/17 and -1.5% in Q1/18).
The exception was once more retail trade, whose pace of real sales expansion did decelerate, but very modestly only: from +4.2% in Q4/17 to +3.8% in Q1/18. In this case, in addition to the maintenance of inflation at low levels and the resumption of credit to households at somewhat lower interest rates, an important explanatory factor is the number of working days: Easter, which is a relevant commemorative date to the sector, occurred in April in 2017, but in March in 2018.
Otherwise, the recovery of retail in particular and of the economy as a whole would have lost even more strength in Q1. Going back to the Central Bank's indicator, now in comparison with the same period last year, economic growth declined from +2.4% in Q4/17 to just +0.9% in Q1/18.
In spite of this frustrating general movement of the large sectors of the economy, some of its segments managed to go against the grain and improve (or at least maintain) their results in early 2018. But it is important to note that there were few such cases.
In the industry, only capital goods were able to preserve their momentum. Their physical production increased 10.8% in both Q4/17 and Q1/18 compared to the equivalent periods of the previous years. Deceleration marked all other industrial macro-sectors, although in the case of durable consumer goods this did not jeopardize its reasonable pace of growth (+16.3% in Q1/18).
The preservation of the performance of capital goods may be reflecting one of the few positive aspects of the beginning of the year: the evolution of the investment. Considering the monthly IPEA indicator for gross fixed capital formation, investment growth did not lose much momentum early this year. In the year-on-year comparison, it went from +3.8% in Q4/17 to +3.3% in Q1/18. This, at least, the beginning of 2018 seems to have managed to preserve.
In retail trade, 70% of the segments surveyed by the IBGE lost dynamism, with some of them once more registering negative results. Exceptions were those segments whose real sales are more directly influenced by the previously mentioned working-days effects, such as supermarkets, food, beverages and tobacco (+4.4% in Q4/17 and +5.7% in Q1/18) and other items for personal and domestic use (+3.0% and +10.9%), as well as vehicles and auto parts (+9.5% and +17.9%), which still have much to recover.
In the service sector, the picture is even more serious. Real revenue of 3 of the 5 segments identified worsened with the turn of the year. However, the best that professional, administrative and complementary services —one of the two to escape the rule— managed to achieve was slightly smaller losses (-2.6% in Q1/18). In fact, only one segment of services made any progress in 2018: other services, which combines a very diverse set of activities; it came out of the negative and grew 1.8% in the first quarter of the year.