Letter IEDI n. 1129—The 2021 recovery
The year 2021 registered growth, but it could have been better if we had started vaccination against COVID-19 earlier and if the emergency measures to combat the economic effects of the pandemic had not been abruptly interrupted. Insufficient planning, which aggravated the impact of the water crisis, and the recurrent postponement of important reforms for long-term growth, such as the tax reform, also took their toll.
Apparently, as suggested by the Central Bank's IBC-Br index, GDP may have grown +4.5% in 2021, enough to surpass the 3.9% decline of 2020, although not all economic activities have managed to take this step. In addition, it was a performance far from the necessary to significantly reduce the unemployment rate, which has been in double digits for six years, or to ensure the restoration of the population's purchasing power, eroded by the increase in inflation and the lower quality of newly created jobs.
The industry, still heavily damaged by bottlenecks in its supply chains and by rising costs, was the sector that least recovered the losses of 2020. Its physical production, after declining 4.5% in 2020, grew 3.9% in 2021.
Two macro-sectors have hindered industrial performance: durable consumer goods (+1.9% in 2021), more exposed to the lack of inputs, given their production in assembly lines that employ a high number of parts and components, including imports; and semi-durable and non-durable consumer goods (-0.5%), channels of the recent acceleration of inflation and more sensitive to high unemployment.
In regional terms, 40% of industrial parks did not see recovery in 2021, notably those in the Northeast (-6.2%), which in addition to high unemployment also suffered more from the interruption and subsequent reduction of emergency aid paid to households. Among the parks that expanded production, 1/3 did not offset the fall of 2020, as was the case of São Paulo's industry, which decreased 6.0% in 2020 and grew 5.2% in 2021.
Retail sales, on the other hand, evolved more favorably. Considered in its broad concept, which includes the vehicle, auto parts and construction material branches, the sector increased its real sales by 4.5%, enough to make up for the 1.4% drop in 2020. Also in this case, however, 40% of its branches were in the red in 2021 and 20% of them (vehicles and auto parts and textiles, clothing and footwear) did not grow enough.
In addition to being partial, the recovery of the industry and retail had another similarity: in both cases, the end of 2021 brought an important deterioration of results. In Q4'21 versus the same period of the previous year, industrial output decreased 5.8% and retail sales declined 4.2%. This behavior makes clear the impact of the 2020 very low comparison bases on the growth rates of 2021 as a whole.
The service sector was also affected by this statistical effect, not only because it had suffered the worst losses in 2020 (-7.8%) but also because it practically did not grow in 2015–2020. This is an aspect to be taken into account when assessing the strong increase of 10.9% in 2021, made possible by the advance of vaccination against COVID-19 and the containment of the pandemic situation in the country in the second half of the year.
This performance of services is good news for employment, although also in this regard the trajectory remains incomplete. This is because the most labor-intensive service branches are still far from recovering what they lost in 2020. This is notably the case of services provided to households, whose real revenue grew +18.2% in 2021, consisting of the strongest increase among all service branches identified by the IBGE, but fell far short of the 35.6% drop of 2020.
Professional, administrative and complementary services are in the same situation. Their real revenue shrank 11.4% in 2020, with only a partial recovery in 2021: 7.3%. This was mainly due to the branch of administrative and complementary services (-13.5% and +5.4%, respectively), which, in general, consist of outsourced activities of lower qualification. Reduced or closed offices due to the incorporation of teleworking in companies' routine may be delaying the recovery of this segment.
The advantage of services over other economic sectors is that the end of 2021 did not bring a loss of dynamism, probably due to deferred demand throughout the worst moments of the pandemic. In Q4'21 compared to Q4'20, services' real revenue grew 9.4%, that is, very close to the pace of 2021 as a whole.