As shown by the GDP performance in the third quarter of 2020, the Brazilian economy is recovering at a higher speed than many estimated at the beginning of the pandemic. However, the path is not free of setbacks, especially while the COVID-19 threat endures. In Oct/20, in addition to an incomplete revival, there were some signs of accommodation.

The recovery process is incomplete because many activities have not yet managed to make up for the losses of Mar–Apr/20. While retail trade and the industry have already overcome the COVID-19 shock, being in October 4.9% and 1.4% above the level of Feb/20, the service sector remained 6.1% below.

In a set of 19 activities—composed of the industrial macro-sectors and the retail and services branches identified by the IBGE—practically half (10) are still lower than pre-COVID-19 levels. The most serious cases include more labor-intensive services, such as those provided to households and the professional, administrative and complementary services demanded by companies. It is a bad sign for the general picture of employment in the country.

Even so, despite the delay in many activities' recovery, the large economic sectors showed more modest growth rates from Sep/20 to Oct/20. This accommodation is a movement of a somewhat premature nature. Only those sectors with still low bases of comparison did better. This was the case of services, with +1.7% after seasonal adjustment, but which still grew less than in previous months.

The industry, with +1.1%, saw its dynamism fall by more than half what it had been registering and, for the first time since May/20, two of its macro sectors were unable to grow: intermediate goods (-0.2%) and semi- and non-durable consumption goods (-0.1%). In addition, more than 40% of its 26 branches and 15 regional parks went into the red in Oct/20.

In turn, the +0.9% figure of retail trade was weak for the second time in the seasonally adjusted series. Retail did better only in its broad concept (+2.1%), thanks to sales of vehicles and auto parts, which remain far from pre-pandemic levels (5.2% below Feb/20).

As a result, the Central Bank's IBC-Br index, which acts as a proxy for GDP, had the most modest result since the beginning of the recovery in May/20, even though it remained 2.4% below the pre-pandemic figure. Without seasonal effects, it changed +0.9% in relation to Sep/20.

Signs of accommodation were already expected as the economic reactivation progressed, but they may be reflecting factors other than the mere restoration of the bases of comparison, such as the reduction in the amount of emergency aid to families in a context of record unemployment. Moreover, the recent acceleration of inflation, affecting mainly essential goods such as food, also reduces the purchasing power of the population and tends to slow down domestic demand.

The recent rise in COVID-19 cases in the country, doubts about the acquisition and distribution of vaccines, as well as the possible suspension of emergency programs at the beginning of 2021 increase uncertainty and are additional factors hindering the recovery. The rupture of production chains with the scarcity of some inputs and raw materials, even if temporary, does not help the recovery process either.

The full text is available in Portuguese.