Letter IEDI n. 1042–Industrial Performance and Future Challenges
According to the IBGE's Monthly Industrial Survey, in September 2020 the industry eliminated the losses caused by the COVID-19 pandemic in March–April. It took five months of growth and not all branches have reached this stage, but this phase of recovery is now complete. The important thing now is that the sector does not fall into a low growth pattern.
From August to September, after seasonal adjustment, the industry was up 2.6%. As a result, its production level was 0.2% above that of Feb/20, i.e., the pre-COVID-19 figure. As has been the rule since May, most branches grew in Sep/20: 22 of the 26 monitored by the IBGE or 84.6% of the total. Despite this, only a smaller fraction has overcome the fall of Mar–Apr/20: 58% of the total, suggesting that the industrial revival process remains incomplete.
The best-performing branches are computer and electronic equipment (18.3% above Feb/20), tobacco (+16.1%), non-metallic minerals (+9.8%), wood products (+9.5%) and electric machinery, equipment and materials (+9.1%). In the 42% of the industry still lagging behind we see sectors like printing and reproduction of recordings (32.1% below Feb/20), clothing (-17.1%) and vehicles (-12.8%). At least, these last two achieved higher growth rates in Sep/20 (+16.5% and +14.1%, with adjustment).
Among the industrial macro-sectors, all moved into the black from August to September, and the highlights were durable consumer goods, with a +10.7% increase, and capital goods, with + 7%. Both, however, remained at a level lower than in Feb/20: 2.8% and 5.5% below, respectively. Maintaining the recent growth rate, this gap will be eliminated soon.
Intermediate goods and semi and non-durable consumer goods are in a better situation, as they have already returned to pre-pandemic levels. The first is 3.7% above the level of Feb/20 and the second is 0.2% above. In Sep/20 versus Aug/20, they grew 1.3% and 3.7%, respectively.
In addition to the fact that important fractions of the industry have not yet eliminated the gap created in Mar–Apr/20, there are a number of other challenges to be overcome in the next months. One of them is the reduction in the emergency aid to families in the last quarter of the year; others are the high unemployment and higher corporate indebtedness, as well as the occurrence of a second wave of contagion in certain parts of the world, such as in Europe, which may worsen the negative performance of our industrial goods' exports.
There are also signs of friction along the production chains with limited access to some national and imported inputs. This has been due to a faster-than-expected reactivation of Brazilian economic activity and a heterogeneous evolution of the COVID-19 outbreak in different parts of the world.
Contributing to this situation is the maintenance of very low inventories, which is necessary in view of the liquidity requirements of companies. According to a CNI survey, in Sep/20 the level of inventories in the industry was the lowest in the series and in 92% of branches businessmen considered them to be below planned. The expectation is that, as the pandemic is controlled and the economic recovery gains more consistency, inventories will normalize and episodes of scarcity of inputs will cease to exist.
Overcoming all these challenges on the demand and the supply side is essential for the industry to accelerate its growth and create better conditions to follow the modernization cycle that the sector is going through in the rest of the world.
It is worth remembering that the Brazilian industry has been experiencing overlapping crises for the last six years, the 2014–2016 crisis and the present one caused by COVID-19, interspersed with a brief and insufficient recovery in 2017–2019. In Sep/20, industrial output remained 16% below the peak prior to this latest phase of adversity.