Letter IEDI n. 931–In the wrong direction
In April 2019, the industry saw the continuation of a recessive scenario that has started manifesting since the end of last year. Thus, the result for the year as a whole is already expected to be the weakest since the sector started to recover in 2017. If this takes place, we will be taking a step back, because the rest of the world is not waiting for us: global industry is growing and moving towards a new technological standard.
In relation to the same period of the previous year, the Brazilian industry recorded a fall of -3.9% in April/19, signaling the possibility of a worse result in Q2/19 than in Q1/19 (-2.3%). In the seasonally adjusted series, it only managed to remain stable in April, registering +0.3% against the previous month, a performance unable to offset the -1.4% decline of March.
As a result, projections for the industry in 2019 are heading in the wrong direction. According to the Central Bank's Focus Bulletin, expectations for the growth of industrial production showed, on June 7, 2019, a variation of only +0.47%, that is, less than 1/6 of what was expected at the beginning of the year (+3.04%). The outlook for 2019 industrial GDP followed the same path: in four months, the forecasted increase of +2.89% on February 8, 2019 plummeted to +0.88% on June 7, 2019.
In short, the deterioration of industrial performance is clear. As the industry establishes numerous and distinct links with other economic activities, setbacks in its recovery can greatly jeopardize GDP growth as a whole.
The industrial branches that have been leading the reactivation of the sector since 2017 are now in reverse. This is notably the case of durable consumer goods, which grew by +13.2% in 2017 and +7.9% in 2018, but declined -2.2% in Jan-Apr 2019.
In part, this is due to production of automobiles, whose double-digit growth rates have given way to virtual stability (-0.5% in Jan-Apr/19), as exports have been hampered by the Argentine crisis. But this is not the only factor. Consumer electronics (-15.1%) and furniture (-7.0%) are in the red because of the low dynamism of the domestic market, as a result of high unemployment and the cost of credit to households.
In an even sharper recession are capital goods, which previously had also led industrial recovery alongside durable consumer goods. In the year to April 2019, they accumulated a fall of -3.1%, after growing +6.2% in 2017 and +7.3% in 2018. Here, in addition to the strong deterioration in entrepreneurial expectations emerging from the difficulties faced by government reforms, the high levels of idle productive capacity and scarce sources of investment financing also contributed to this reversal.
Together with capital goods, there is the intermediate goods macro-sector, with a drop of -3.1% in the first four months of 2019 compared to the same period of the previous year, a more intense setback than the general industry’s (-2.7%). The main contribution to this picture comes from food intermediates (-7.4%) followed by pulp (-5.2%). This macro-setor, it should be remembered, did not present a very encouraging result in 2018 as a whole (+0.2%).
Finally, the semi-durable and non-durable goods industry registered the least intense contraction in the first four months of 2019: -1.3% compared to the same period of the previous year, driven by textile and clothing, pharmaceuticals and fuels. This result, however, happens after another decline of -0.3% in 2018 as a whole.
Unemployment very close to its record levels and low growth in total real income are factors that have hindered the evolution of semi-durable and non-durable consumer goods, and that also do not favor consumer durables branches. In addition, there is an increasingly complex international context with the trade tensions between the US and China, which further aggravates our competitiveness problems and jeopardize the use of exports as a way of compensating for the low dynamism of the domestic market.