Letter IEDI n. 1063—Signs for 2021
The turn of the year (2020-2021) was marked by a reduction in the level of economic activity, under the influence of retail trade and services, negatively affected by the greater number of COVID-19 cases, by the reduction in emergency aid to families and by the prospect of the end of the policy package against the economic crisis. The industry, in contrast, remained resilient and output increased in a higher number of branches.
The figure for the industry in Dec/20 was +0.9% against Nov/20, adjusted for seasonal effects, in line with the previous months, while retail had a record loss for December, -6.1% (and -3.7% in the broad concept) and services real revenue, at -0.2%, went back to the red for the first time since Jun/20.
The signs from retail and services suggest a loss of dynamism in household consumption, which sooner or later can also impact the industry. In other words, although it did well at the end of 2020, the industry's performance in the subsequent months remains under pressure, given the setback in retail, which is an important channel for the flow of industrial production.
The Central Bank's IBC-Br Indicator, a proxy for Brazilian GDP, has been reflecting this general picture, pointing to a slowdown in the final quarter of last year, from +1.76% in Sep/ 20 to +0.64% in Dec/20, with seasonal adjustment. For the year as a whole, the total drop is around -4% compared to 2019.
It is worth noting that it was not only in December that the industry showed a better performance. The sector also contributed to the 4th quarter/20 not being weaker. In relation to the same period of the previous year, industrial production left the falls behind and registered +3.4%, making Oct–Dec/20 its only positive quarter of the year.
This improvement was felt in most of the industry, with 17 of the 26 branches monitored by the IBGE (65% of the total) and 3 of its 4 macro sectors (75% of the total) with positive figures. The highlights were capital goods (+14.8% compared to Q4/19), which had been severely affected by the strong uncertainty in the worst moments of the pandemic, and intermediate goods (+4.9%).
Regionally, the acceleration of industrial growth at the end of last year led to a double-digit expansion in the southern states of the country and good results in part of the Southeast, including São Paulo, with +6.6%, and also in Amazonas. In the Northeast, the industrial decline was limited to Q2/20, with the sector growing again in the second half of the year, benefited by the emergency aid.
This evolution at the end of 2020 helped to reduce, but not to eliminate, the output losses in the industry as a whole, which reached -4.5%. With that, since 2014 the sector has grown in two years only (2017–2018). In the other five years of the period the industry shrank: in 2014–2016, one of the most profound crises it has ever been through, and then in 2019–2020.
Retail trade, favored more immediately by the emergency aid and online sales, managed to grow +1.2% in 2020, in its narrow concept. However, if sales of construction material and vehicles and auto parts are included (broad concept of retail), the sector did not get through the pandemic unscathed: -1.5% compared to 2019.
Despite this, at the end of the year there were signs of loss of dynamism in retail, unlike in the industry. In its narrow concept, the +6.3% increase in Q3/20 fell to +4.1% in Q4/ 20, having reached only +2.3% in the two-month period Nov–Dec/20 versus the same period the previous year. In its broad concept, this movement was mitigated by the relative improvement in vehicle and auto parts, strongly affected by the pandemic: +4.2% in the last two quarters and +3.3% in Nov–Dec/20.
In the case of services, as the IEDI has been emphasizing, reaction remains blocked by COVID-19, which still demands physical distancing, social isolation and low people mobility of people. If it is true that mass vaccination is important for the complete normalization of all economic activities, it is even more fundamental for services.
The sector's real revenue shrank -7.8% in 2020 as a whole, but it was much worse for some segments, especially services provided to households (-35.6%), air transportation (-36.9%) and administrative and complementary services (-13.5%), comprising those low-skills activities generally outsourced by companies.
The 4th quarter/20, on the other hand, brought little mitigation of losses, with the year-on-year figure at -5.2%. The only branch to react was "other services", which includes a diverse set of activities, driven by financial services. It registered +8.2% in Q4/20. Information and communication services were also in the black, but very close to stability (+0.9% compared to Q4/19). In all other branches, losses continued to be severe. This is bad news for employment at the start of 2021.