Letter IEDI n. 1041–Industry Trade Balance by Technological Intensity in Q3/20
International trade has recently shown signs of lessening 2020 losses, largely due to the reactivation of Asian economies. As a result, in October the WTO, which had earlier projected a -12.9% drop in the year, revised its estimates to a less severe scenario: -9.2%.
Brazil has benefited from this evolution and from the fact that countries and their economies are at different stages of the COVID-19 pandemic. The partial recovery of Brazilian GDP growth and the reactivation of some consumer markets for our products, especially in Asia, hold back the country's imports and favor our exports, even more so in view of a favorable agricultural harvest.
Thus, in Jan–Sep/20, Brazil's trade surplus increased 17% compared to the same period last year. The balance amounted to US$ 42.2 billion and resulted from two movements. On the one hand, the surplus of primary goods (agriculture and extractive sector) grew +10% in the period. On the other hand, the manufacturing industry's deficit hardly moved, varying by -1%.
The performance of the industry's foreign trade in 2020 is the result of similar decreases in its foreign sales (-15.5% compared to Jan–Sep/19) and its imports (-12.8%) in the context of the serious COVID-19 global crisis. Today's Letter IEDI analyzes the evolution of the Brazilian industry's trade balance by technology intensity this year and emphasizes the 3rd quarter/20, that is, the period after the worst moment of the pandemic both in Brazil and in many other countries.
The classification of the manufacturing industry by technological intensity used here is based on the OECD methodology that establishes five ranges: high, medium-high, medium, medium-low and low intensity. The low-intensity segment includes products from agriculture, livestock, forestry, fishing and aquaculture and does not include any manufacturing activity.
Quarter by quarter, the Brazilian trade balance behaved as follows: a surplus of US$ 4.5 billion in Q1/20, US$ 17.2 bi in Q2/ 20 and US$ 20.5 bi in Q3/20. That is, a persistent upswing. The primary goods surplus remained at the same level in recent periods: US$ 23.2 billion in Q2/20 and US$ 23.8 billion in Q3/20.
The strengthening of the overall balance during the year was, however, driven by manufacturing, whose deficit fell significantly from US$ 13 billion in Q1/20 to just US$ 3.3 billion in Q3/20. It was the smallest deficit for a third quarter since 2017 and its origin was a much more intense drop in imports (-28.6% compared to Q3/19) than in exports (-14.8%) of industrial goods.
The manufacturing groups facing the largest falls in external purchases in Q3/20 were those of lower technology intensity, including branches of intermediate goods and of semi and non-durable consumer goods, which is associated with a still very incomplete revival of national demand.
Medium-low technology range's imports decreased -39.4% in Q3/20 compared to the same period last year, that is, more than in Q2/20 (-25.7%). The biggest influences for this came from clothing and footwear, metal and oil products. The medium intensity range, on the other hand, fell -49.8%, driven by the sectors of metallurgy, rubber and plastic and shipbuilding (which includes oil platforms).
The other categories were also in the red. The decrease in high-tech imports softened, from -16.7% in Q2/20 to -7.9%, due to smaller decreases in electronics and the aircraft industry. The medium-high range, in turn, maintained its pace of decline and registered -25.1% in Q3/20, mainly due to imports of vehicles and machinery and equipment.
As for exports, the worst results were concentrated in more technologically intensive groups. The high-tech industry exported 32.3% less than in Q3/19 and the medium-high, -21.8%. Although the falls remain severe, at least there was some easing, since in Q2/20 these sectors had registered -59.7% and -41.1%, respectively.
In the case of high technology, even though negative signs have been disseminated, the biggest contribution comes from the aviation industry, which, as is known, is one of the sectors that has suffered the most during the COVID-19 crisis. In the medium-high category, the main negative contributions in Q3/20 came from vehicles, machinery and equipment, and chemical products.
Exports of the medium technology intensity industry registered a -30.7% decrease compared to Q3/19, due to operations with oil platforms and the metallurgical industry.
The smallest drop in exports in Q3/20 was recorded by the medium-low intensity group, with only -0.9% in relation to the same period of the previous year. As a consequence, the pace of losses in its external sales was significantly reduced, since in Q2/20 they had declined -5%. This improvement came from a less adverse result for wood, paper and cellulose (-7.7%) and the continuation of the upward trend in food exports (+11%).