Letter IEDI n. 936–Short breath
The industry's recent trend, if it continues into the next few months, may indicate that the sector's recovery, begun in 2017, was nothing more than a short-term process. With almost half of the year already covered by official IBGE data, 2019 is for the moment a lost year, since its performance is dominated by negative rates.
May was no different, registering -0.2% compared to the previous month, after discounting the seasonal effects, which virtually nullified the positive change of April (+0.3%). The pattern of the last few months (in the series with adjustment) has been of oscillations very close to zero, with the falls generally more intense than the increases. As a result, in May/19 industrial production was 1.4% below Dec/18.
This means that the industry has not shown enough strength to reverse the deterioration suffered from 2018 to 2019. Today, the sector is still worse than a year ago. Between January and May this year, there was a loss of -0.7% in relation to Jan–May/18. This result is not worse only because two effects assured an extraordinary +7.1% increase in May/19 vs. May/18, which should not happen again in June.
The first of these effects was the low base of comparison, since the last weeks of May/18 were marked by the truckers' strike, which blocked the flow of goods and disrupted the production line of many companies. The second concerns a calendar effect, since May had this year one more working day than the same month last year.
In this way, any mitigation of the current recessive phase of the industry may be merely transient. The sector continues to feel the negative impacts of the Brumadinho dam disaster, which has hurt extractive activities, the crisis in Argentina and the tensions in international trade, which have reduced manufacturing exports (-1.6% in quantum versus Jan-May/18), and the low dynamism of the domestic market, given the uncertainties regarding economic policy, high unemployment and insufficient growth in the real income of the population.
Industrial performance in twelve months allows us to better identify the sector's recent trend, since it mitigates the two effects (calendar and base of comparison) that inflated the May/19 result and cushions the negative impacts of the Brumadinho disaster. According to this comparison, after peaking at +3.9% in April 2018, industrial growth fell until exhaustion in the first months of 2019, registering 0% in the twelve months to May/19 in relation to the equivalent previous period. This clearly shows that the industry has halted.
The trend emerging from the 12-month indicators for the industrial macro-sectors is also declining, without exception, if we compare the best mark reached in the recent recovery phase, which occurred in April 2018, and the month of May 2019, the last official data available.
In this comparison, the two most serious cases are intermediate goods and semi-durable and non-durable consumer goods. In the first one, the trend has already become negative (-0.9% in the 12-month to May/19 against +2.6% up to April/18), largely reflecting the problems of the extractive sector, but even earlier it presented very low growth. In the second, which was also showing low dynamism for a long time, the trend points to stagnation: only +0.2% in June/18–May/19 against +2.1% in May/17–Apr/18.
Meanwhile, capital goods and durable consumer goods, which had been leading industrial recovery, remained at this position with the highest growth rates in the 12-month period to May/19, but suffered a deep deterioration in recent months. For capital goods, the dynamism accumulated until Apr/18 shrank by 60% in May/19, from +10.1% to +4.2%. For consumer durables, in turn, the cut was even higher; the growth trend in May/19 is around 20% only of what it was in Apr/18: +3.7% versus +17.4%.
In June 2019, these declining trajectories are expected to continue and may even worsen, as the monthly result will be negatively affected by the two fewer working days than June/18 and will have a stronger comparison base because industrial production has already offset what it had lost with the strike in May last year. To these factors we must add the continuous increase in inventories, often considered excessive by the CNI's survey, and the deterioration of the sector's entrepreneurs assessment of current business conditions in June.