Letter IEDI n. 1085—Short and long term industrial regression
The COVID-19 pandemic negatively impacted economic activity in Brazil and the world in 2020. The shock was felt in different ways in all economic activities—lockdowns, suspension of less essential activities and interruption of international supply chains—including the manufacturing industry.
Countries have adopted robust packages of fiscal, monetary and health measures aimed at maintaining jobs and sustaining demand, keeping markets functioning and avoiding serial failures.
Although in the right direction, the economic responses have not, however, managed to prevent the COVID-19 economic crisis from being the worst in a hundred years, causing substantial losses in total GDP and industrial output in several countries.
Brazil was no exception, as several IEDI studies have shown in recent months, even though the situation was not as catastrophic as many expected at the beginning of the pandemic.
This Letter IEDI evaluates the performance of the manufacturing activity in Brazil and in the world in 2020. We estimate the COVID-19 impact on the decline in the industry's relative participation in the country's productive structure, assessing if the pandemic intensified a trend that we have been experiencing for some decades. In this way, it updates data presented in Letter IEDI n. 940 “An outlier,” of August 02, 2019, which had already shown that the industrial downturn in Brazil is premature and one of the most intense worldwide.
In the present study, the evolution of the industry in the country was compared with global trends. This is because, unlike the Brazilian case, until the pandemic struck the world industry not only had not been registering a loss of participation in global GDP, but actually showed signs of increase. In other words, industrial regression is not a phenomenon seen everywhere.
In 2020, even though manufacturing output fell a lot in Brazil, recording -4.3% according to the IBGE, it contracted less than in the rest of the world (-8.4%). The reasons for this include the adoption of effective emergency measures, such as aid paid to families, which added up to 4.0% of GDP and covered 67.8 million people or 45% of Brazilian households.
But there are also other less noble factors, such as the fact that we have not been able to implement lockdown periods as strict as in other countries to prevent the spread of the coronavirus. Moreover, the timing of the pandemic varied across in the world, with the second COVID-19 wave striking Brazil only in 2021, but happening still in 2020 in other countries and regions, such as in Europe.
In Brazil, as the industry's fall was similar to total GDP's (-4.1%), its share did not change much; this, however, still did not stop the she share of manufacturing in our production structure from contracting, going from 11.92% of GDP in 2019 to 11.88% in 2020, at constant 2015 prices.
Due to the COVID-19 crisis, the industry's share of GDP dropped from 17.25% to 16.56% between 2019 and 2020 worldwide, at constant 2015 prices, interrupting a trajectory of moderate rises since the 1990s, brought about by Chinese industrialization.
If the world total except China is considered, the industrial decline was more pronounced, going from 14.81% of GDP in 2019 to 13.97% in 2020, also at constant 2015 prices.
Despite the less intense contraction of Brazilian industry in 2020, for a better understanding of the country's industrial situation the effects of the pandemic must be inserted in a long-term trajectory.
In 1980, Brazil had a degree of industrialization greater than the world’s, that is, manufacturing accounted for 21.1% of our GDP, higher than the 15.6% global average. In 2020, the situation was reversed and, as we saw earlier, this ratio in Brazil was 4.7 p.p. below the global average and 2.1 p.p. lower if we exclude China from the world figure.
If looking back is not encouraging, looking forward does not bring any promising signs either. The latest Brazilian GDP data show total GDP grew 1.2% in Q1/21, but the manufacturing industry declined 0.5%. As a consequence, the share of manufacturing fell again, to 11.5% of GDP at the beginning of the year, when compared to the result of 2020 as a whole.
The industrial regression has been almost continuous over the past few decades, causing manufacturing to directly contribute a tenth of GDP only. It should be remembered, however, that directly and indirectly industrial products continue to make a contribution far above any other sector of the economy in terms of productive ramifications (connection with multiple sectors), expenditure on technological activities and tax collection.