Letter IEDI n. 1024–Industry Trade Balance in the Pandemic Quarter
In the first half of 2020, the manufacturing industry's trade deficit increased 66% compared to the same period in 2019, reaching BRL 19.1 billion. However, about 2/3 of this result were due to the first three months of the year because, with the COVID-19 shock bringing down the level of industrial activity and consequently the sector's imports, the industry's deficit fell in Q2/2020. Exports also declined in the period.
Thus, the pandemic played the role of reducing the industrial deficit in recent months at the cost of a further drop in the sector's trade flow. Imports declined because Brazilian economic growth was compromised and exports were lower because the global coronavirus crisis halted international trade. This is in addition to the competitiveness problems that continue to exist in our economy, the real solution of which is a deep and comprehensive tax reform.
This Letter IEDI analyzes Brazilian industry's international trade flows in the first half of 2020, highlighting their performance in April–June, when most of the economic effects of the coronavirus pandemic were concentrated. For this, the OECD manufacturing industry classification by technology intensity was used.
In the new version, manufacturing is classified into four of the five intensity ranges: high, medium-high, medium and medium-low. The low-intensity segment includes products from agriculture, livestock, forestry, fishing and aquaculture but no manufacturing industry activity.
The following is a summary of our findings.
In the high-tech industry, the trade deficit increased 10% in the first half of 2020 in relation to the same period last year, but little of this was due to Q2/20, when the rise was of only 2.3% in the same comparison. This performance reflected a 15.6% reduction in imports, due to the aeronautical and electronics branches. Exports, however, decreased even further: -58.2% compared to Q2/19, almost entirely due to the 74% drop in the aeronautical industry.
Still in high technology, there was a 10.3% increase in imports of pharmaceutical products in Q1/20 and 2% in Q2/20 compared to the same period of the previous year—as would be expected in the face of a pandemic—contributing to the US$ 4.4 billion deficit in these goods in the first half of the year (7.8%).
In the medium-high technology range, the trade deficit increased 9% in Jan–Jun/20 versus the same period in 2019, despite a 3.8% decrease in Q2/20. In this case, exports (-41.1%) also fell much more than imports (-21.8%) in Apr–Jun/20. Among the different branches, the automobile industry and the chemical sector contributed the most to the lower foreign sales. On the import side, the results came mainly from machinery and equipment, electrical machines and devices, in addition to motor vehicles.
It is worth noting that the 2020 export setbacks of these categories of greater technology intensity were so intense that they pushed down the share of high and medium-high technology in manufacturing total foreign sales to 25.8%, the lowest in recent years. The fraction of high technology alone was reduced to half of what it was in the first six months of 2008, from 8.1% to just 4.1%.
In the medium-tech industry, the Jan–Jun/19 US$ 4.4 billion surplus turned into a US$ 1.1 billion deficit in Jan–Jun/20. This resulted from the strong deterioration of the vessel construction business, with imports rising both in Q1/20 and in Q2/20 due to the operations of the naval sector (including platforms), but also to the performance of metallurgy, the largest exporter of this range, which saw its foreign sales shrink in both quarters.
Finally, medium-low technology not only showed a surplus in the first half of 2020, but its balance increased 6% compared to the same period last year. This resulted from a rise concentrated in Q2/20 (18%), due to the food sector whose exports registered +13.9% in the period, very influenced by the advance of the agricultural harvest. For the range as a whole, foreign sales dropped 4.3% in Apr–Jun/20 and imports registered -25.8% due to oil products, textiles, clothing and footwear, and food.