Letter IEDI n. 1029–Covering COVID-19 losses
In July 2020, the Brazilian industry continued to come back online after the COVID-19 shock, which paralyzed many of its production units in Apr/20. The progressive relaxation of social isolation measures contributed to the sector registering +8% from June to July (after seasonal adjustment).
This performance was accompanied by a wide range of positive rates across the different industrial branches. Of the 26 monitored by the IBGE, 22 branches reported output increases, in the seasonally adjusted series. In addition, there was an expansion in the use of installed capacity, a reduction in inventories and an improvement in confidence in the sector. These are all favorable omens for performance in the coming months.
Still, the initial impact of COVID-19 has not yet been overcome. The level of industrial production remains 6% below that of Feb/20, that is, before the pandemic hit the country. The gap in capital goods and, especially, consumer durables is even more significant: 15.8% and 15.2% below Feb/20, respectively.
However, with one more month of growth similar to what we have seen lately the valley created in Mar–Apr/20 will be filled. What is not yet known is what the growth pattern is going to be like from this point on. And this is important because the current crisis overlapped that of 2014–2016.
With higher bases of comparison and a reduction in the government's emergency programs, the dynamism, even if positive, may turn out to be limited. This is because, in the absence of a vaccine or effective treatment for COVID-19, there will still be negative consequences of the pandemic, such as high unemployment, more modest household incomes, indebted agents, weak international trade and great uncertainties regarding the future.
For now, a third consecutive month of industrial reaction led to a revision of market expectations about the sector's performance in 2020 as a whole. The year will still be negative, but likely less so than previously believed.
In two months, the Central Bank's Focus Bulletin forecast for 2020 industrial physical output went from -9% at early Jul/20 to -7.4% at the end of Aug/20. After the release of the latest IBGE data, it reached -6.4%. It is important for the recovery not to lose breath in the coming months, especially since 2019 had already been a year of adversity (-1.1%).
In Jul/20, the highest growth rates were presented by consumer durables and capital goods, that is, the macro-sectors with the most to recover. In the first case, there was an increase of +42% compared to the previous month (with seasonal adjustment) and an easing in the rate of decrease in relation to the same period last year, from -35% in Jun/20 to -15.9% in Jul/20. In the second case, the rise was +15%, in the adjusted series, and in the interannual comparison the loss was reduced from -22.4% to -15.4%.
Intermediate goods, which are the core of the industry for it produces different inputs for the entire sector, has been registering a clear acceleration month after month, going from +5.5% in May/20 to +8.4% in Jul/20, after the elimination of seasonal effects. In addition, it was also the only macro-sector to grow in relation to Jul/19: +1.4%. These developments are another favorable sign for the industry.
Semi-durable and non-durable consumer goods, on the other hand, for comprising many essential products and some markets positively impacted by the health nature of the current crisis, grew +4.7% against Jun/20 and had a lower level of decrease in relation to last year: -5.2% compared to Jul/19.