Letter IEDI n. 1080—The economy in the second COVID-19 wave
In Q1/21, the economy may not have done as badly as expected considering the strong deterioration in the health situation, but it did not go unharmed. The level of activity declined again, although not as intensely as at the beginning of the first wave of COVID-19, since there was not much progress in the lockdown and because there was some learning, allowing the adoption of security protocols and reducing uncertainty.
From Feb/21 to Mar/21, the tightening of restrictive measures, high unemployment and the absence of emergency programs against the effects of the pandemic caused a decline in all major economic sectors, in an intensity that only lost to Apr/20 (in the series with seasonal adjustment), the worst month of the COVID-19 crisis.
Real retail sales in its broad concept, which includes the segments of vehicle, auto parts and construction material, declined 5.3 percent and revenue in the service sector dropped 4.0 percent. The industry fell less, but it was already in the red: -1.0 percent in Feb/21 and -2.4 percent in Mar/21, with seasonal adjustment.
As a result, all these sectors lost much of what they had achieved in the last months of recovery. Broad retail, which in Nov/20 reached 4 percent above pre-pandemic (Feb/20) sales, submerged to a level 3.6 percent below that mark. Services, in turn, which barely recovered from the shock of Mar–Apr/20, also went back to the red: -2.8 percent compared to Feb/20.
The industry, at least, did not regress as much as the other sectors and remained exactly at the level prior to the first effects of the pandemic; however, if went through an accommodation, given that at the end of 2020 it was 3 percent above Feb/20 output.
With these results, the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, also declined from Feb/21 to Mar/21: -1.59 percent, seasonally adjusted, losing the gains of the second half of 2020 and returning to its pre-pandemic level.
Based on IBGE data, the greatest obstacles to economic activity in Mar/21, with double-digit rates of decline, were retail sales of durable and semi-durable consumer goods, services provided to households and industrial branches that manufacture consumer goods.
In retail, the biggest fall came from clothing and footwear, with -41.5 percent versus Feb/21, after the elimination of seasonal effects, impacted by store closures and lower adaptation to online commerce. The sectors most dependent on consumer confidence and access to credit, such as furniture and household appliances (-22%) and vehicles and auto parts (-20%), also fell sharply.
In the service sector, those provided to households were the most affected, registering -27.0 percent compared to Feb/21, mainly due to the component of accommodation and food (-28%), directly impacted by greater social isolation, which also led to a decrease of 10.2 percent in air transport services. Poor results marked other personal services and administrative and complementary services too, which generally comprise activities outsourced by companies.
In the industry, in turn, the most serious scenario has been that of durable consumer goods, declining since Jan/21. In Mar/21 they registered -7.8 percent in relation to Feb/21. However, the most intense decline was seen in semi- and non-durable consumer goods: -10.2 percent, with adjustment. Regionally, the recent deterioration has mainly marked the southern states, notably Rio Grande do Sul (-7.3%), and the Northeast Region as a whole (-4.2%).
For all the economic activities mentioned above, the COVID-19 crisis is a very present reality, as they are very far from pre-pandemic levels. Services provided to households are no less than 44.4 percent below Feb/20, clothing and footwear retail is 50.1 percent below and sales of furniture and appliances, and vehicles and auto parts are 18.1 percent and 21.7 percent below that month's levels.
In the industry, the gap is of -12.1 percent in durable consumer goods and -8.6 percent in semi- and non-durable consumer goods. From a regional point of view, the Northeast (as a whole) is the industrial park furthest from its situation of Feb/20, with production 11.2 percent lower, reflecting, to a large extent, the reduction and subsequent interruption of the emergency aid paid to families.