Letter IEDI n. 1098—The industry in the first half of 2021
The first half of 2021 was a period of low dynamism for the industry as a whole, with its recovery process (started in 2020) clearly losing strength as a result of the new COVID-19 outbreak, the delay in vaccination, the interruption of emergency programs and the inflation acceleration. The sector reached the end of this period in stability, showing a flat rate of change from May to June, after seasonal adjustment.
The previous months, however, were not favorable either: declines prevailed and there was only a single month of growth, May'21, so that the level of production in Jun'21 was 3.2% below that of Dec'20. As a result, the sector returned to exactly the pre-pandemic output level of Feb'20.
Thus, if the industry as a whole registered expansion in Jan–Jun'21 (+12.9%) compared to the same period last year, it is, to a large extent, due to an extremely depressed base of comparison and the statistical effect caused by the reaction in the second half of 2020, when there was an improvement in the health situation and more robust emergency measures to fight the economic impacts of the pandemic.
The most unsatisfactory performances came from parts of the industry for which household consumption plays an important role: in Jun'21 durable consumer goods were at a level 16.2% lower than in Dec'20 and 14.8% below Feb'20, that is, the pre-pandemic figure, while semi- and non-durable consumer goods registered a level 7.8% below Dec'20 and 7.6% below Feb'20.
The recovery process seems more consistent in capital goods, which showed a persistent increase in the last three months, already discounting seasonal effects, leading its output level to be 0.7% above Dec'20 and 16% above the pre-pandemic figure. Therefore, its +45.6% growth rate in Jan–Jun/21 against the same period of the last year is expressive for reasons other than a depressed basis of comparison.
Capital goods for agriculture (+54.4% compared to the 1st half of 2020) and for construction (+66.8%) grew in the 2nd half of 2020 and strengthened their results in the 1st half'21 in the interannual comparison, in the wake of the expansion of agribusiness and the real estate sector. Capital goods for transport had a more recent but also strong reaction (+68.6%). In addition to the domestic market, exports have also stimulated the production of capital goods.
Intermediate goods, in turn, despite the recurrent news of bottlenecks in the supply of industrial inputs, have been showing low dynamism. Its production level in Jun'21 was 3% below Dec'20 and only 1.5% above the pre-pandemic figure. From May'21 to Jun'21, this macro-sector registered -0.6%, the third consecutive negative rate in the series with seasonal adjustment.
Thus, industrial recovery continues to face obstacles to the normalization of its production chains. This is also indicated by businessmen' assessments regarding inventories, which have been at levels seen as unsatisfactory since Apr'20. The good news is that the situation is becoming less serious compared to the end of 2020, according to CNI indicators.
In manufacturing, after practically all industrial sectors having lower than planned inventories in Dec'20 (96% of the total), in Jun'21 this was seen in 19 of the 26 branches monitored by the CNI, or 73.1% of the total. That is, the problem is still widespread, but less so than before. More balanced inventories reduce the vulnerability of production chains to unexpected spikes in orders, alleviating existing bottlenecks.
For the second half of the year, expectations are positive, as suggested by the confidence indicators of industrial entrepreneurs in July from both the CNI and the FGV. Much of this is associated with the acceleration of vaccination in Brazil, but also in other countries, making it possible to glimpse the overcoming of the health aspects of the recent crisis.
In the case of Brazil, however, there are other risks on the horizon, such as the water crisis, the persistent rise in inflation and its effects on the country's interest rates, which, as we know, tends to greatly affect industrial product markets due to the importance of durable goods, whether for consumption or investment, whose demand requires favorable financing conditions.