Letter IEDI n. 1057—Industry resilience and the economy in late 2020
In November 2020, the level of economic activity continued to expand in the country. Among the large economic sectors, the industry shows to have the most consistent recovery path, although not the most vigorous. It had already overcome the COVID-19 shock of Mar–Apr/20 and continued to grow in late 2020.
Services, in turn, have not yet returned to pre-pandemic levels, although they registered a positive performance in Nov/20. Retail trade, which had been doing better than the other sectors, almost came to a halt in the penultimate month of last year. This may have been the first effect of the reduction in the emergency aid paid to households, as well as a result of high unemployment and inflation acceleration, especially in food.
In relation to Oct/20, after eliminating seasonal effects, industrial output grew 1.2%, in line with the previous performance (+1.1%), while real retail sales posted -0.1% and, including the branches of vehicles, auto parts and construction material (broad concept of retail), registered only +0.6%. With comparison bases still weakened, services' real revenue grew +2.6%.
Thus, the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, showed a 0.5% expansion of the overall level of economic activity in Nov/20 against the previous month, with seasonal adjustment. Although positive, this was the weakest result since the beginning of the recovery in May/20, reinforcing the possibility of output leveling off with the end of the emergency programs designed to combat the effects of the pandemic.
Another sign in this direction: the OECD's new high-frequency indicator, which uses artificial intelligence, machine learning and Google Trends data, estimates a 1.2% drop in Brazil's GDP in the first weeks of 2021 compared to the same period the previous year. There was a clear trend toward a loss of dynamism since the beginning of Nov/20, according to this indicator.
In the industry, another positive factor was the greater sectoral and regional amplitude of its expansion. In Oct/20, 58% of the 26 branches monitored by the IBGE and 53% of the 15 regional parks went back to black, whereas in Nov/20 these figures increased to 65% and 67%, respectively. In other words, the reaction remains incomplete, but is progressing.
All industrial macro-sectors also avoided negative ground in Nov/20, especially capital goods and durable consumer goods. The only unfavorable result came from intermediate goods, which for the second consecutive time were virtually flat. Regionally, important industrial centers, such as São Paulo and all states in the South region, advanced more than the national total, as did Amazonas and the Northeast region.
Unlike the industry, which maintained its performance and grew in more geographical areas, retail trade suffered an inflection— despite November being a month of promotions, which is usually positive for the sector. In Nov/20, 40% of its branches were in the red; important for the aggregate result was the 2.2% drop in sales of supermarkets, food, beverages and tobacco (seasonally adjusted).
In services, not only the increase was higher in Nov/20 than in Sep/20 and Oct/20, but there were positive variations in all five segments identified by the IBGE, too. The best result came from services provided to households, 8.2% with seasonal adjustment, reversing the deceleration trend of previous months. Then came professional and transport services.
Even so, services remained 3.2% below the pre-COVID-19 shock revenue level and suffered an 8.3% drop in Jan–Nov/20 compared to the same period of the previous year. It is the worst performance among the major sectors of the economy and, for reaching very labor-intensive activities, it makes it difficult for unemployment to fall in the country.
Furthermore, the situation is worsened by the fact that the acceleration of COVID-19 cases at the turn of the year, the delay in the population's vaccination process and the end of emergency programs tend to find services, at the beginning of 2021, at a still very fragile point of its recovery.
The industry, despite accumulating losses of 5.5% in Jan–Nov/20, is faring better than services. As we have seen, it has grown systematically and in a better-distributed way, resulting in a level of production, in Nov/20, 2.6% above the pre-pandemic level of Feb/20.
As for retail trade, real sales (in the broad concept of retail) were 5.2% above the pre-crisis period and accumulated a 1.9% fall in the year to November, largely due to vehicle and auto parts (-15.1%). In its restricted concept, in which the increase in supermarket sales during the months of social isolation weighs more, the performance was more favorable: 7.3% compared to Feb/20 and 1.2% in Jan–Nov/20.