Letter IEDI n. 1013–After the collapse
After the initial shutdown of many companies to adopt health & safety protocols and reorganize internal processes, which contributed to the collapse in April, the performance of industrial production in May 2020 offset part of its previous declines, registering an increase of 7%, free from seasonal effects.
This, however, does not mean that the recovery has already started. In fact, the level of production remained 21% below that of Feb/20, that is, before the COVID-19 pandemic, and 34.1% lower than the historic peak of May/11. For some sectors, the overlap of this crisis with that of 2014–2016 generated even heavier losses, as in durable consumer goods (77% below the peak of Jun/13) and capital goods (57.9% less than the peak of Sep/13).
Another negative sign, according to IBGE data, was the 21.9% drop in comparison with May last year, not far from the performance registered in Apr/20 (-27.4%). As a result, the utilization of the sector's installed capacity remained well below its historical level (-16%)
The weak easing of the industrial situation is mainly due to little improvement in intermediate goods (-14.6%), which are the core of the industrial system, producing inputs for other activities. In addition, capital goods (-39.4%), consumer durables (-69.7%) and semi and non-durable consumer goods (-19.3%) continued to register record drops, losing to April only.
In relation to a year ago, production in May/20 was lower in 22 of the 26 industrial branches monitored by the IBGE, that is, in 84.6% of the total. The worst cases continued to be vehicles and auto parts (-74.5%) and other transportation equipment (-71.2%), followed by clothing and accessories (-60.8%) and leather and footwear (-56.3%).
In addition to the internal factors related to the pandemic, such as the maintenance of social isolation and the continued increase in cases of COVID-19 in the country, much of this adverse situation for the industry is also related to the contraction of international trade. The fall in the volume of manufacturing exports reached -30.8% in May/20 and -19.7% in the first five months of the year.
Two pieces of information, however, point to some improvement in the industrial trajectory in the months ahead. The first concerns inventories, which have decreased again and are below the levels desired by companies. This means that the accumulation of inventories does not tend to be an obstacle to output recovery.
The other favorable information is in relation to the confidence of the sector. In this case, however, the positive signs are not yet strong and consistent. In June, indicators from both the FGV and the CNI showed improvement, but were still in the zone of pessimism. In addition, this movement was less pronounced in the item referring to entrepreneurs' assessment of the current situation, suggesting the persistence of significant adversities in June, too.