Letter IEDI n. 913–Low energy
The economy began the year low in energy, despite rising expectations. Although our hopes for the future have been reinvigorated in recent months, we are yet to see a more consistent growth path that can lead us to overcome the crisis of 2015-2016.
January was one more month of setbacks for the industry, following a pattern that has occurred since the end of last year. It also brought adverse results to the service sector, whose early signs of recovery appear with much parsimony. Retail trade, in turn, remained in positive ground, but not without registering some deceleration.
The consequence of a very anemic start of the year is that projections for GDP growth in 2019 have already fell by 0.5 percentage point between January and March, according to the Central Bank's Focus survey. That is, in only two and a half months the performance expected for 2019 was reduced by 1/5, going from 2.5% to 2%.
This was largely due to the general balance of the major economic sectors in Jan/19: industrial production -0.8%, services’ real revenue -0.3% and real trade sales only +0.4% (+1% if sales of vehicles, auto parts and construction material are considered), all in relation to Dec/18, with seasonal adjustment. Thus, the Central Bank's IBC-Br indicator, which acts as a proxy for GDP growth, registered variation of -0.4% in the same comparison.
None of this is by chance. These results correspond to a situation marked by: low employment dynamism, interest rates on bank credit that are no longer falling, low capacity of the public sector to organize fundamental investment projects in infrastructure, as well as a lack of horizon for the removal of the obstacles imposed on the industry (related, for instance, to taxation, innovation and modernization of the industrial park). In addition, we also continue to witness a very sharp decline in investments connected to the country's future, notably in the field of research and technological development.
The current situation is this: those who started the recovery process first seem to find difficulties to continue the movement; those that began later, having very low bases of comparison, manage to reinforce their dynamism.
The industry fits into the first case. After rising +5% in Q4/17, it fell -1.1% in Q4/18 and, taking by the rate for Jan/19, the worsening may deepen further: -2.6% against the same period of the previous year. Services, on the other hand, is an example of the second case, since only recently it began to recover. Thus, the +2.1% increase in relation to Jan/18 points to a more robust growth than in Q4/18 (+0.9%). That is, as the industry is no longer growing, services stop dropping.
Retail trade, in turn, is in the middle, presenting an accommodation in sales' performance. This meant moving from +4.4% in Q4/18 to +3.5% in Jan/19, in its expanded concept —i.e. considering sales of vehicles, auto parts and construction material. In the narrow concept, dynamism was better preserved: +2.2% in the 4th quarter/18 and +1.9% in Jan/19, always in relation to the same period of the previous year.
In the case of the industry, the obstacles are mainly concentrated in the Southeast region —with São Paulo as the negative highlight, as it has been experiencing output losses, at a steep pace, since September last year. From a sectoral point of view, the deceleration is widespread, but the most affected sectors are those that were previously better off, especially durable consumer goods (-2.7% versus Q4/17 and -5.5% vs. Jan/18) and, more recently, capital goods (+3.5% and -7.7%, respectively).
In services, the biggest obstacle to recovery is the segment of professional, administrative and complementary services, that is, those usually demanded by businesses. This segment, which was already weak, fell systematically in the last five months in the year-on-year comparison, although the contraction of Jan/19 (-0.5%) was less intense than that of Q4/18 (-1.7%).
As for retail, the main source of worries is sales of furniture and household appliances, and textiles, clothing and shoes. In the first case, the signals point to a continuous deterioration: -2.0% in Q4/18 and -2.8% in Jan/19 compared to the same period of the previous year. In the second case, Jan/19 (-1.2%) may be pointing to the return of a downward phase that had been interrupted in Q4/18 (+1.6%). Other important segments, such as vehicles and auto parts, also started 2019 with less dynamism.