Letter IEDI n. 1061—Industry in 2020 and the challenges of 2021
In 2020, the Brazilian industry suffered another year of significant losses, as expected, reinforcing the phase of serious adversities that the sector has been experiencing in recent years. Between 2014 and 2020, industrial output increased only in 2017 and 2018. In all other years, there was a decline. Reversing this trend will require rescuing the reform agenda, with emphasis on taxation, ensuring the maintenance of low interest rates and a competitive exchange rate and implementing firm innovation and productivity policies.
Due to the negative shock caused by COVID-19, especially in the second quarter of the year, the figure for industrial production in Jan–Dec/20 was -4.5%. It was not worse, as many estimated at the beginning of the pandemic, only due to the emergency measures adopted by the government, in particular the emergency aid paid to families, which helped to boost consumption.
None of the industrial macro-sectors passed unscathed. All four registered decreases, with emphasis on those whose markets depend more on confidence and favorable expectations regarding the future, such as capital goods (-9.8%) and durable consumer goods (-19.8%). One of the worst economic effects of the pandemic has been to generate a picture of radical uncertainty that has so far not been fully overcome.
Semi and non-durable consumer goods also registered a drop (of 5.9%) in 2020, even though they include essential activities that were less affected by the COVID-19 crisis such as production of food, beverages and medicines. Intermediate goods, which comprise the core of the industrial system, lost 1.1% in the year.
A study carried out by the IEDI with IBGE data for 93 industrial segments shows that 67% of them (or 62 segments) were in the red in 2020. This proportion is higher than that registered in 2019 (49%). The most serious was the rise in segments with sizeable losses: in 2019 only 7 registered double-digit falls while in 2020 there were 20 of them, among which jewelry items, with -70.8%, reproduction of recorded materials, with -40.1%, printing activity, with -37.9%, automobiles and other transport equipment, with -33.2% and -29.1%, respectively.
The IEDI study also showed that, despite the rather difficult overall picture, there were activities that managed to grow in 2020. The highest rates of expansion in production were registered by artifacts for fishing and sports (26.8%), sugar manufacturing and refining (24.4%), tanks, metallic reservoirs and boilers (13.8%), cement (12.1%), tobacco (10.1%) and cleaning and polishing products (10%). These were the only segments with double-digit growth rates.
In addition to these cases that showed resilience, it is important to note that many of the segments with an unfavorable performance in 2020 as a whole ended the year back in positive ground. Of the 62 falling segments, 41 recorded growth in the 4th quarter/20, that is, 66% of them. In fact, the year ended with a positive signal. Of the 93 segments, 66 (or 71%) grew and, more than that, 39 (or 42%) were double-digit highs.
The emergency measures helped, as mentioned above, but so did the low interest rates, stimulating some recovery of consumption of durable goods and the resumption of activities with power to leverage important parts of the industry, such as civil construction. Another favorable aspect was the more depreciated exchange rate, which alleviated the structural problems of competitiveness in national production. So much so that there were positive signs in industrial exports in the final months of 2020.
The challenge now is to continue to grow. The fact that inventories remain below the desired level in almost the entire industry is likely to keep stimulating a favorable pace of production. According to the CNI, 25 of the 26 branches monitored had stocks considered low in Dec/20. This may have been an important factor for industrial resilience at the end of last year, despite the reduction in the amount of emergency aid paid to families. In the seasonally adjusted series, the industry recorded +1.0% in Oct/20, +1.1% in Nov/20 and +0.9% in Dec/20.
But with the beginning of 2021, all emergency programs against the effects of COVID-19 were discontinued and contagion cases accelerated, leading to the tightening of social isolation measures in some areas. This is a development that can harm the industry's dynamism. As a consequence, the FGV and CNI industrial confidence indicators showed deterioration in Jan/21, although they remained in positive ground. The PMI-Markit for the Brazilian industry also signaled a reduction in the level of activity.