Letter IEDI n. 1111—Weak economic performance
The general level of activity in the Brazilian economy has recently been showing more and more evident signs of weakening, as last year's bases of comparison are no longer so depressed. Two of the three large economic sectors were in the red in Aug'21: retail trade had the biggest loss, but the worst trajectory is seen in the industry.
Compared to the previous month, with seasonal adjustment, real retail sales dropped 2.5% in its broad concept, which includes vehicles, auto parts and construction material, canceling out the entire increase registered in Jul'21. Industrial production, in turn, shrank 0.7%, the sixth negative rate in the first eight months of the year.
Even in relation to last year, these two sectors were unable to grow, interrupting the sequence of positive variations that had been registered until then, largely due to very low bases of comparison. Before Aug'20, retail was flat at 0% in its broad concept and fell 4.1% in its narrow concept, while the industry contracted 0.7%.
In addition to the high unemployment and the uncertainties still present—many originating in the political sphere—other factors like the persistent rise in inflation (commodity prices, exchange rates, water crisis, etc.) and the imbalances in production chains also contribute to this scenario. The convergence of the trajectories of the industry and retail trade may not be by chance, as retail is an important channel for the distribution of industrial output.
The poor performance of retail in Aug'21 reached 70% of its branches and two adverse patterns can be identified. Some are fluctuating very close to stability, that is, around zero, (supermarkets, food, beverages and tobacco; vehicles and auto parts; pharmaceutical and perfumery products). Others have been showing consecutive drops, after a period of erratic results (building material; fuels and lubricants; office, computer and communication equipment; furniture and appliances; books, newspapers and stationery).
In the industry, the loss of production in Aug'21 was also widespread. It affected 58% of its branches and 47% of its regional parks, although some important industrial centers such as São Paulo and Rio de Janeiro were spared. Of the four macro-sectors, only semi- and non-durable consumer goods were positive (+0.7% against Jul'21), while durable consumer goods (-3.4%) continued to show the worst result.
As for services, the sector did well in Aug'21. With the advance of vaccination, obstacles that prevented the revival of activities that require mobility, physical presence and personal contact are being removed. It is worth remembering, however, that this is the sector that took the longest to start recovering.
Even so, real services revenue changed only +0.5% in relation to Jul'21, after discounting the seasonal effects. It was the lowest positive rate in 2021, even though the sector has only recently returned to pre-pandemic levels. As it still has a depressed basis of comparison, given the “delay” in its recovery, it registered an increase of 16.7% compared to Aug'20.
With services growing less and the industry and retail in the red, the Central Bank's IBC-Br indicator, which works as a GDP proxy, fell 0.15% from Jul'21 to Aug'21, with seasonal adjustment. As a matter of fact, this indicator points to a virtually stagnant level of economic activity from May'21 onward.
This evolution is already affecting agents' expectations about the performance of the economy this year and next year, too. The expected 5.99% rise in 2021 GDP that the BCB's Focus Bulletin identified in mid-July'21 decreased to 5.15% in the beginning of Sep'21 and then to 5.04% early in Oct'21. In this same period, expectations for the 2022 GDP were reduced from 2.28% to 1.93% and then to 1.54%.