The Brazilian economy's balance of trade in goods reached a record US$98.8 billion in 2023, and the IEDI has been analyzing the characteristics of this outstanding performance. The IEDI Analysis of March 1st, 2024 emphasized the role of the super harvest of grains and the import contraction for this result. Also, Letter IEDI n. 1252 showed that the reduction of the industry's deficit helped, but only the high-tech branches' exports grew, even though they remain below the pre-pandemic level.

This edition of Letter IEDI addresses foreign trade in goods as a whole, that is, including agricultural and extractive activities, both in value and quantity, and the main destinations of our foreign sales. 

The increase in the balance of total trade in goods was of 60.8% against 2022, which is equivalent to about an additional US$37 billion in surplus. Of this, 85% was obtained by the drop in our imports and only 15% by the progress of our exports.

Compared to 2022, imports of goods fell 11.7% in the year, mainly driven by the evolution of the average price of our purchases, since the quantity variation was of -2.6%.

Quarter after quarter, the country's foreign purchases contracted, reaching -19.6% in Q3'23. This drop was slightly attenuated in Q4'23: -11.5%, always in relation to the same period of the previous year.

Brazil imported about US$31.8 billion less in 2023, with the main contribution coming from manufacturing, accounting for 76% of this reduction in imported goods. This was a consequence of the low dynamism of the sector last year, as well as of investment, since many inputs and capital goods are imported. As discussed in Letter IEDI n. 1248, the physical production of the manufacturing industry shrank 1% in 2023.

Despite this industrial contribution, the pace of decline of the other sectors was stronger, as they were more susceptible to the influence of international commodity price developments, which contracted until the middle of last year.

Imports from the extractive industry fell the most: -27% in value, although the variation in quantum was the mildest of all: -2.1% compared to the previous year. At the origin of this, there is the price of energy commodities, whose index calculated by the IMF showed a drop of almost 27% in the period.

Agricultural imports, in turn, fell 21.0% in 2023, more influenced by the quantity (-15.4%) than the price effect, although the IMF indicator for agricultural commodities also registered a small reduction last year (-1.2%).

For manufacturing goods, the drop in imports was of 10%, and in quantity the variation was almost four times less intense (-2.7%). The decline in the price of fuels, as well as other chemicals such as fertilizers, was at the origin of this difference in pace. The final quarter of last year brought little change: -9.8% in value and -2.4% in quantum, always compared to 2022.

As for exports, manufacturing also stands out for being the only sector to show a drop in both value (-2.3%) and quantum (-0.9%). Agriculture, as previously mentioned, was the one whose foreign sales expanded the most: +9.0% in 2023, driven by the increase in the quantity exported (+23.4%) resulting from the super crop. 

In the extractive sector, as well as in agriculture, exports advanced despite adverse price developments: +3.5% in value and +16.2% in quantum. It is worth mentioning the strengthening of Chinese demand, due to the acceleration of its GDP expansion (from +3.0% in 2022 to +5.2% in 2023, according to the IMF), leading to an increase of 15.1% in its purchases from the Brazilian extractive industry.

The performance of Brazilian exports, notably those of the manufacturing industry, was associated with the significant 2023 global slowdown in trade and GDP, with negative effects on commodity prices, the loss of dynamism of world industrial output, as well as the performance of some important markets for our manufacturing goods.

In its Jan'24 scenario update, the IMF estimated that the volume of international trade in goods and services varied only 0.4% in 2023 against an expansion of 5.2% in 2022. That is, a much more intense slowdown than expected at the beginning of last year (+2.4% in the Apr'23 outlook). And although the risks of a hard landing have fallen throughout the year, world GDP in 2023 grew less than in 2022 (+3.1% versus +3.5%, respectively), in a context of monetary policy tightening in the main advanced and emerging economies.

It should be emphasized that the negative impact of the loss of dynamism in world trade in 2023 was not greater only due to the gap between export contracts and shipments.

In the case of our manufacturing exports, in particular, the picture was worsened by the sector's lower world growth: about +1.1% in 2023, equivalent to almost 1/3 of the 2022 result, especially in branches of lower technological intensity, as discussed in Letter IEDI n. 1246, whose products are significant in our industry's export basket (Letter IEDI n. 1252).

It is also necessary to consider the poor performance of some of the importing markets of Brazilian industry goods, especially Argentina, whose GDP shrank 1.1% in 2023 according to the IMF, and to which our manufacturing industry exported 3.8% less than in 2022. Another example is the European Union, whose GDP decelerated from +3.6% to +0.6% between 2022 and 2023, contributing to Brazil's manufacturing exports falling 6.3% in the period. 

Among the 23 manufacturing branches identified, few were able to increase their shipments in 2023: only 12 versus 21 branches in 2022. As a result, the sector's exports became even more concentrated. 

Only 3 branches —food, base metals and automobiles— accounted for 57.2% of total manufacturing exports in 2023 compared to 56.1% in 2022. This is not a recent phenomenon, but a mark of the last decades. In 2000, the 3 industrial branches that exported the most —exactly the same as previously mentioned— represented 41.9% of the sector's shipments.

It is worth noting that two of these branches consist of initial stages of industrial transformation of commodities produced by the country. The food industry increased its share from 16.8% in 2000 to 35.3% in 2023; base metals were relatively stable, with 13.3% and 13.8%, respectively, while the automobile industry's share shrank from 11.9% to 8.1% in the period.

This evolution suggests that the process of reprimarization of our export basket, which made the weight of manufacturing in the total exported decrease from 83% in 2000 to 52% in 2023, was also felt within the manufacturing industry itself. 

Given this situation, it is appropriate to recall some conclusions of a MDIC (Ministry of Development) study released last year, which was the subject of Letter IEDI n. 1219. The study, based on data from 2020, shows that only 0.88% of Brazilian companies export, with manufacturing representing 65% of them, well ahead of the extractive sector (1.4%) and agriculture (2.0%), and that the probability of an industrial company starting to export within 10 years of foundation (4%) was four times higher than the general average (1%).

The full text is available in Portuguese.