Brazilian industry is in a state of stagnation in 2023 and, if extractive activities are excluded, the recent performance is even more unfavorable, with successive losses. 

Manufacturing value added, as shown by the latest GDP data, decreased 1.5% in Q3'23 and 1.6% in Jan–Sep'23. Physical production of the sector shrank, respectively, 1.1% and 1.2%, always compared to the previous year.

Today's Letter IEDI analyzes this performance according to the technology intensity of industrial branches, following the OECD methodology. For this, we use the physical production data released by the IBGE.

In summary, the higher the technology intensity, the worse the result in Q3'23. The only expansion observed was in the medium-low technology group, both in the quarter and in Jan–Sep'23. The high and medium-high technology ranges, on the other hand, followed a path of clear deterioration throughout the year.

Below, we highlight the main results of each of the technology intensity categories. The manufacturing industry, it is worth remembering, has branches in four groups: high, medium-high, medium and medium-low intensity. According to the OECD, no manufacturing branch is part of the low-tech segment.

The high-tech industry stands out for being the range that regressed the most in 2023. It started the year growing 7.7% in Q1'23, which was reversed into a decline of 5.2% in Q3'23. Thus, the virtual stability observed in the period Jan–Sep'23 (+0.3% versus Jan–Sep'22) was solely due to the first quarter of the year.

All high technology branches have worsened substantially, but those associated with the field of health deserve to be highlighted for the change of sign of their figures. The pharmaceutical and pharma-chemical sector went from +19.3% in Jan–Mar'23 to -0.6% in Jul–Sep'23 and that of medical, optical and precision instruments, from +8.8% to -5.6%, respectively. The result for electronics, on the other hand, worsened from -4.1% to -13.3% in the same period.

The medium-high industry, in turn, stands out for presenting the sharpest contraction of Q3'23: -8.1% in relation to the same period of the previous year. This range did not grow in any of the first three quarters of the year. Much of this was due to the automobile industry, which went from -1.4% in Q1'23 to -12.1% in Q3'23, despite countercyclical government actions, which determined the reduction of vehicle taxes.

Other branches of the medium-high range also regressed a lot, notably those associated with investment, which, as we saw in the GDP data, continued to contract in Q3'23. These are the cases of machinery and equipment (-9.3% against Q3'22) and electrical machinery and appliances (-10.0%).

The high and medium-high technology industries include sectors with longer production chains —and, therefore, more exposed to the so-called "Brazil cost"—, depend on a dynamic innovation system —which in recent years has been greatly hampered by the impoundment of budget funds by Brazilian governments— and their markets demand confidence and adequate financing conditions —harmed by the high levels of interest rates still practiced in the country. Together, the high and medium-high categories recorded a decrease of 7.6% in Q3'23.

The medium technology intensity range remained in the red, but at least avoided the deterioration registered by the higher intensity groups. Its production fell 2.6% in Q3'23, that is, at a pace very close to that of the period Jan–Sep'23: -2.2% compared to the same period of the previous year.

Within this group, however, there was a worsening in the rubber and plastic sector (+3.7% in Jan–Mar'23 and -1.4% in Jul–Sep'23), offset by some easing of the drop in metallurgy (-3.8% and -2.3%, respectively) and non-metallic minerals (-9.4% and -5.6%).

Finally, the medium-low technology industry grew, with its result gaining strength, from +0.2% in Q1'23 to +3.0% in Q3'23, due to its two main branches: food, beverages and tobacco (+1.3% and +4.8%, respectively) and coke, petroleum products and biofuels (+2.7% and +6.2%). In the year, it is also the range that performs best: +1.6% compared to Jan–Sep'22.

The full text is available in Portuguese.