Letter IEDI n. 1022–Industry en route to reaction
The industry's recovery, after the collapse in April, continued in June 2020, when it grew 8.9% compared to May, after the elimination of seasonal effects. Given how exceptional the COVID-19 crisis has been, the important issue is, more than getting back to the black, the character of the recovery going forward. Will the sector return to the low dynamism of 2017–2019 or will it be able to establish a more robust trajectory of expansion?
For now, the signs suggest caution. There was practically no acceleration in relation to the result of May (8.2%) and the sector is reacting at a lower speed than the rate of decline in March–April. In addition, industrial exports continued to fall sharply (-13.1% compared to Jun/19) due to the adverse world trade situation, the crisis in Latin American countries—which are important markets for our industry—and to entrepreneurs' assessment of the current situation—which is still pessimistic.
The fact that two acute crises occurred so close to each other and that the reaction of 2017–2019 was very weak, registering an average annual growth of only 0.8%, can work as important obstacles because they hindered the renovation and modernization of our industrial park in recent years.
The control of the pandemic, the reaction of the world economy and the way in which the government lifts the emergency measures adopted to combat the coronavirus crisis, as well as the rescue of the reform agenda (notably that of our tax system) are important factors for the virtuous recovery of the industry.
It is worth emphasizing the long road ahead. The level of industrial output in Jun/20 was 13.5% below that of Feb/20, that is, before COVID-19 reached Brazil, and 27.7% below the level of May/11, when the sector was at the highest point of production in its historical series, before the setback of 2014–2016.
In Jun/20, a favorable characteristic of the general industry's expansion was how widespread growth was across its branches: of the 26 monitored by the IBGE, 24 branches managed to grow, that is, 92% of the total. Among the industrial macro-sectors, positive variations occurred without exception.
Production of durable consumer goods was the one that grew the most in Jun/20: 82.2%, under the positive influence of auto plants getting back to work (+70%), among other sectors. Despite this, the sector remained at a level 40% lower than that of Feb/20.
Capital goods, in turn, recorded the second largest high in Jun/20 (in the seasonally adjusted series): 13.1%, driven by electrical machinery and equipment (24.4%) and machinery and equipment (10.6%). Also in the case of capital goods, the level of production was lower than before the COVID-19 crisis, with the comparison between Jun/20 and Feb/20 pointing to a 27% gap.
Semi and non-durable consumer goods, with a 6.5% increase in Jun/20, received an important positive contribution from beverages (19.3%), leather and footwear (16.1%) and clothing and accessories (10.7%). Fuel and food production prevented a stronger reaction. Compared to Feb/20, the output level of this macrosector was 9.4% lower.
Finally, intermediate goods, whose production tends to be less cyclical, recorded the weakest growth of the month (4.9%). As a result, production is still 9.7% below the level prior to the pandemic.
For the general industry, the picture in Jun/20 was negative by -9% when comparing to Jun/19, but at least there was an improvement in relation to the previous two months, which recorded drops greater than -20%. Apparently, Q2/20 was the worst moment of the COVID-19 crisis for the sector: -19.5% compared to the same period of last year.