Letter IEDI n. 1135—Adversities in early 2022
The year 2022 began with a decline in economic activity, in an industry-led movement. The sector continues to suffer from bottlenecks in production chains. The fall also reached retail and services, harmed by the outbreak of the omicron variant.
In addition to the developments directly related to the pandemic at the beginning of this year, the scars of the worst moments of the crisis are important obstacles to a more consistent performance of our economy.
It is worth mentioning that double-digit rates can be seen in unemployment, consumer inflation and the base interest rate defined by the Central Bank (Selic), depressing the domestic market. This is especially so for the industry, which still "competes" with the recovery of the share of services in households budgets.
In Jan'22, after correcting for seasonal effects, industrial production shrank 2.4% in relation to Dec'21, while real sales of broad retail—which include sales of vehicles, auto parts and construction material—varied -0.3%. In the case of services, this time there was no growth to compensate for the decline of other sectors; it fell 0.1% in the same comparison.
Thus, the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, fell 0.99% in Jan'22 compared to the previous month, with seasonal adjustment. As a result, the entire gain of the previous months was lost and it returned to a level close to that of Sep'21.
In the industry, although much of the decline was concentrated on durable consumer goods (-11.5% against Dec'21), the negative sign marked the performance of 77% of its branches. No macro-sector escaped, including capital goods (-5.6%). The regional scenario of the industry was also not much better than the sectoral one, with 2/3 of the industrial parks losing production early in the year.
São Paulo and Rio de Janeiro, the main industrial axis of the country, were in the red in Jan'22, but at least they did fall as much as other parks. Compared to Dec'21, they registered -1.0% and -1.4%, respectively, contributing for a national performance of the sector "less bad" than it could have been otherwise.
Among the regional industries that fell more than the total for Brazil in Jan'22, the most acute cases occurred in the North region—both Amazonas (-13%) and Pará (-9.8%)—part of the Northeast—Ceará (-3.8%) and Pernambuco (-5.0%)—and in the Center-South—the industries of Paraná (-5.1%) and Minas Gerais (-10.7%). The period of intense rainfall at the beginning of this year was an additional adverse factor, mainly affecting the results of the extractive branches in Pará and Minas Gerais.
In retail trade, 7 of the 10 segments monitored by the IBGE were in the red and for 5 of them this was not the first time sales ceased to expand in recent months. Given the performance at the turn of the year, it can be said that retail has been going sideways, that is, oscillating around mere stability. This is shown by the quarterly moving averages (with seasonal adjustment) since November last year.
In Jan'22, those branches whose sales tend to demand physical presence—such as fabrics, clothing and footwear (-3.95) and vehicles (-1.9%)—and are thus more subject to the impact of the spread of the omicron variant lost more.
In addition to the fall of vehicles, recurrent negative rates in furniture and household appliances and the low dynamism in information technology and communication do not bring good signs for the durable consumer goods industry. Fewer retail sales mean lower demand for inventory replenishment.
The service sector, in turn, was flat at the beginning of 2022, interrupting the sequence of good results of the final two months of last year. Still, it continues to be the sector that has made the most progress lately.
Compared to Jan'21, its real revenue registered an increase of 9.5% and is 7% above the level of revenue of Feb'20 (the pre-pandemic mark). At least for the sector as a whole, there are no signs of the inflection that the industry and retail trade have undergone. Much of this is due to vaccination against COVID-19.