Letter IEDI n. 1023–Economy in uneven recovery
Completing the data set for the second quarter of 2020, the IBGE figures for June show signs that the worst moment of the COVID-19 crisis in Brazil has passed. After April's shock, the reaction has, however, been quite partial and uneven among the main sectors of the economy.
From May to June, growth was ubiquitous: 12.6% in broad retail trade (includes construction and auto sales), 8.9% in the industry and 5.0% in services, after eliminating seasonal effects. As a consequence, the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, showed a 4.9% increase in the general level of economic activity in the month.
This favorable performance has been influenced by the lessening of the aggregate demand contraction resulting from the emergency aid, by businesses’ implementation of health security protocols and by the progressive relaxation of social isolation measures under way in various parts of the country since June. Another factor that cannot be overlooked is the very low basis of comparison after the tumble that occurred mainly in Apr/20.
Despite the upward trend in all sectors, the industry's growth rate was relatively flat in relation to May, services accelerated—presenting their first increase after a period of adversity dating back to the end of last year—while retail sales went through an accommodation, with a lower speed of recovery.
The deceleration of retail verified in the seasonally adjusted series did not prevent the sector from practically canceling out the COVID-19 negative shock. This is shown by the comparison between Jun/20 and Feb/20—that is, before the pandemic hit Brazil—which, for narrow retail, gives a variation of +0.1%. In its broad concept, which includes sales of vehicles, auto parts and construction material, there is still some loss to recuperate: -4.7%.
Households not affected by unemployment nor by a considerable loss of income due to the pandemic may also have offset their lower consumption of personal services (resulting from social isolation) through the purchase of retail goods. This factor and the lower interest rates help sales of furniture, household appliances, computers, construction material, vehicles and, to some extent, also clothing and footwear, which were among the sectors with the highest increase in June.
Unlike retail, the industry and services strengthened their performance but, in spite of this, remained very far from offsetting all the losses caused by COVID-19. The level of industrial output in Jun/20 was 13.5% below that of Feb/20. As for services revenues, the gap was 14.5%.
In the industry, capital goods (-27.1%) and, especially, durable consumer goods (-40.1%) are the macrosectors most distant from the output level recorded before the crisis (Feb/20), even though they were the ones that advanced the most from May to June (13.1% and 82.2%, respectively, with adjustment).
Regionally, production expanded in almost all industrial parks (93% of the total), but in 73% of them there was still a double-digit lag compared to Feb/20, including important areas for the national industry, such as São Paulo (-14.4%), Rio de Janeiro (-11.3%) and Rio Grande do Sul (-17.3%). Those with the most to recover were Espírito Santo (-30.3%), Ceará (-26.6%) and Bahia (-22.4%).
In services, positive signals were also quite widespread, reaching all five branches identified by the IBGE, in addition to the special aggregate of tourist activities. The biggest increases were in services provided to households (14.2% compared to May/20, with adjustment) and transport, its auxiliaries and postal services (6.9%), with the relaxation of social isolation measures in many urban areas across the country.
These same segments, which are more labor-intensive or associated with people's mobility, are the ones furthest from February's revenue level. In the case of services provided to household, the gap reaches -51.3%, due to accommodation and food, and also to other personal services. In transport and postal services, the difference is -16.3%, mainly because the air travel sector was paralyzed due to the pandemic (-63.7%).
The asymmetry among different economic sectors and among their branches results from the greater or lesser vulnerability of each type of activity to social isolation measures and the shrinking of markets due to the COVID-19 outbreak, as well as from the possibility of adapting to this new context (through online sales and remote work, for example) and the different stages of businesses reopening.