Letter IEDI n. 1093—Industry: favorable prospects and new risks
With the advance of vaccination against COVID-19 in Brazil and in the rest of the world and a new round of emergency aid to households, the prospects for industrial recovery in the coming months have become more positive, as it may be supported by greater dynamism of domestic demand and also exports, given the revival of international trade.
Indicators of industrial entrepreneurs' confidence interrupted the negative trend of the first months of 2021 and once again suggest a better state of expectations for the sector. In the case of the ICEI/CNI, in Jun'21 it reached the highest mark of the year, with 61.7 points (the region of optimism is established above 50 points).
At the beginning of July'21, expectations for the result of industrial output in 2021 collected by the Central Bank's Focus Bulletin pointed to a 6.3% increase, that is, much higher than the projections at the beginning of March'21 (4.3%) when a second COVID-19 wave was evident in the country.
Thus, the (seasonally adjusted) 1.4% growth rate of industrial production from Apr'21 to May'21, according to the latest survey released by the IBGE, seems to point to the beginning of a new phase of expansion in the sector, following a sequence of negative figures in the first months of 2021. In other words, the year may be just starting for the industry.
Even with the increase in May'21, it is worth noting that the level of output remains 3.1% below that of Dec'20, indicating that this year has contributed little to the industry's recovery. It only managed to return to the pre-pandemic level (that is, the level of Feb'20), after surpassing this mark by more than 3% at the end of 2020.
This is because the recovery process is still incomplete. Of the 26 sectors monitored by the IBGE, 13 sectors, that is, half of them, are still below the pre-pandemic figure. This includes sectors known to be important for spreading dynamism due to the large number of interactions they establish, as is the case of the automotive industry (11.3% below Feb'20), and labor-intensive sectors that are more spread out regionally, such as clothing (14.8% below Feb'20).
Other indicators also suggest the industrial expansion has continued. The quantum of manufacturing exports began to grow again and registered 43.3% in May'21 compared to May'20. Inventories, according to the CNI, have been stable, after decreasing for most of 2020 and early 2021, although many sectors still consider their levels to be below the desired ones. The use of installed capacity, according to the FGV, grew for two consecutive months and reached in Jun'21 (79.4%) the level of Feb'20 (79.5%).
Although the outlook for the coming months is favorable, it is prudent not to underestimate the obstacles to industrial recovery. Some of them are already known; for example, the extremely high unemployment and possible new mutations of the coronavirus. Others are only starting to reveal themselves, as is the case of the water crisis which, although not accompanied by rationing, by implying an increase in tariffs and, consequently, inflation, tends to erode the population's purchasing power and raise companies' production costs.