Letter IEDI n. 1241—Interest rates and industrial paralysis
The industry began the last quarter of 2023 at the same state that prevailed throughout the year: slowly grinding to a halt. From Sep'23 to Oct'23, adjusting for possible seasonal effects, the sector's production changed only +0.1%. In the first ten months of the year, the result is illustrative: 0%.
Based on the recent evolution of industrial entrepreneurs' confidence indicators, it is possible the rate for Nov'23 was positive, as business people became a little less pessimistic than before about current business conditions. Even so, both the FGV and CNI indicators show they are still pessimistic. Moreover, in Oct'23, 72% of industrial branches reported having inventories above what was planned.
Without a firm resumption of industrial growth, no robustness is likely to be seen in the sector's process of modernization towards digitalization and sustainability, paths pursued by the main countries of the world through their industrial strategies, and which will increasingly become parameters of competitiveness in the future.
At the center of the lethargy that marks 2023 are the activities most negatively impacted by the country's still high level of interest rates. That is why the continuity and perhaps even the acceleration of the current phase of decreases in the Selic rate by the Central Bank is so important.
Still, we must emphasize that the interest rates that are key for companies are those charged on their loans. These, as we know, are greatly increased by high bank spreads and taxes. Therefore, it is not enough for the Selic to be reduced, but it is also necessary for financial intermediation to become more effective in its role of adequately financing productive activities in the country.
In Oct'23, the worst case among the industrial macro-sectors was precisely the one that should not be in the red, given the current challenges to increase the country's productivity and competitiveness: capital goods. From Sep'23 to Oct'23, after adjusting for seasonal effects, the physical production of capital goods shrank 1.1%.
In seven of the ten months already covered by IBGE data there was no growth in capital goods, which reached a decrease of 10.3% in Jan–Oct'23 compared to the same period of the previous year. This performance is in line with the systematic contraction of investment in 2023: -2.5% in Jan–Sep'23, according to GDP data.
Another macro-sector with a fall in Sep–Oct'23 was durable consumer goods: -2.4% with seasonal adjustment, the worst negative case in the comparison with seasonal adjustment. Semi-durable and non-durable consumer goods, in turn, shrank 0.3%; thus, the only group that grew in Oct'23 was intermediate goods (+0.9%), responsible for keeping the industry as a whole in the black.
With the official data released by the IBGE so far, we already know the industry’s performance in 2/3 of the second half of the year. In Jul–Oct'23, a negative rate was avoided, but the picture of paralysis did not change: +0.3% against Jul–Oct'22 vis-à-vis -0.3% in the first half of the year.
In addition, half of the industrial macro-sectors were in the red in Jul–Oct'23 and few segments only explain the growth of the others.
The best performers were semi-durable and non-durable consumer goods, favored by the reduction of food inflation and the improvement of employment in the country. Their output grew 2.5% in Jul–Oct'23 against Jul–Oct'22, mainly due to the meat sector, except pork (+10.3%), dairy (+3.3%) and beverages (+2.4%).
In second, but with very low aggregate dynamism, came intermediate goods, with a variation of 0.6% against Jul–Oct'22. At the origin of this, there are food intermediaries (+7.7%), textiles (+5.1%) and petroleum products (+7.1%).
Leading the losses are capital goods, which, in addition, indicate a substantial worsening in the second half of the year, from -8.5% in Jan–Jun'23 to -12.8% in Jul–Oct'23. Among the worst-off components we see: capital goods for energy (-29.7%), for transport (-22.8%) and for construction (-21.2%). Capital goods for the industry, in decline for a long time, registered -5.6% in relation to Jul–Oct'22.
Durable consumer goods, in turn, went from an increase of 5.7% in the first half of the year to a decrease of 1.6% in Jul–Oct'23. The worsening came from automobiles (-1.0% compared to Jul–Oct'22), suggesting that the tax reduction program promoted by the federal government has not yet had an effect on industrial production in the sector.
Other declining durable consumer goods segments were: brown-line appliances (-10.2%) and furniture (-3.6%). Among those with positive rates, there was deceleration in: other transport equipment, which includes motorcycles, for example, and other household appliances.