Letter IEDI n. 1079—The industry in the red again
At the turn of the year, industrial performance was showing signs of weakening, which in recent months was translated into a return to negative figures. The sector's production fell 1% in Feb/21 and 2.4% in Mar/21, according to the latest (seasonally adjusted) IBGE data. With that, everything that was being achieved in terms of output recovery was jeopardized.
The level of industrial activity in Mar/21 was 3.1% lower than in Dec/20 and was exactly at the same pre-pandemic level (that is, Feb. 20's), after exceeding it by more than 3% in late 2020. This shows the speed of the recent deterioration, which has its origins in the worsening COVID-19 situation and in the reduction and subsequent extinction of the emergency programs designed by the government to deal with the economic effects of the pandemic.
These results make it evident that we are still immersed in the COVID-19 crisis, not only from a health point of view, but also from an economic standpoint. As expected, this deterioration has eroded the confidence state of entrepreneurs in relation to both the future and the current situation. The CNI indicator, for example, pointed out pessimism regarding the current state of business in Mar/21 and again in Apr/21, something that had not happened since Aug/20.
The expansion of vaccination is the fundamental factor to revert this situation and, while it does not occur, it is necessary to reissue emergency measures. The government has only resumed these measures at the end of April, but to a lesser and narrower extent. We still do not to know if they will be enough to put the economy back on track for recovery.
In addition to being very unfavorable—as the 2.4% drop in Mar/21 was the most intense in the (seasonally adjusted) series since the COVID-19 shock in Apr/20—the negative results reached most industrial sectors: 15 of 26 branches identified by the IBGE (58% of the total). The same happened with the macro sectors of the industry, with intermediate goods (+0.2%) the only exception, avoiding the negative region, but practically not growing.
A more intense dynamism in intermediate goods would help to reduce the risks of scarcity of inputs that for several months have been hampering the good functioning of production chains. The replenishment of inventories along the chains is another factor for resilience. The latest CNI data show that most manufacturing sectors (70%) continue to have below-planned inventories, although the situation has eased (in Dec/20, 96% were in this situation).
Durable consumer goods, in decline since Jan/21, has the worst sequence of results, registering -7.8% in Mar/21, after the elimination of seasonal effects. However, from Feb/21 to Mar/21, the most intense drop was suffered by semi- and non-durable consumer goods: -10.2%. Finally, capital goods are also on a downward path. They started 2021 growing 4.8% in the seasonally adjusted series, but fell again in the subsequent months and registered -6.9% in Mar/21.
With these recent results, half of the industrial macro sectors are once again below the pre-pandemic output level and those that are still above it have seen their gap narrow.
Durable and semi- and non-durable consumer goods are 12.1% and 8.6% below Feb. 20's figures, respectively. This indicates the impact that the reduction and subsequent interruption of the emergency aid program paid to families—which most directly affects consumer goods— had on the recent industrial losses. Capital goods and intermediate goods, in turn, remain 9% and 4.2% above the level of production of Feb/20.