Letter IEDI n. 1031–Gradual rebalancing
In July 2020, we took another step to recover the economic losses caused by COVID-19. The negative shock at late March and April has been gradually offset since May, but for the large economic sectors this is still an incomplete process. Recovery, for now, is partial.
From June to July, the industry grew the most, registering +8% (seasonally adjusted). Then came retail trade with +7.2%, including sales of vehicles and construction material (broad concept of retail), and services with only +2.6%.
As a result, the Central Bank estimates, through its IBC-Br indicator, which acts as a proxy for GDP, that the level of economic activity grew +2.1% at the beginning of the second half of the year, seasonally adjusted.
The continuation of the positive path last month gave rise to less negative expectations for 2020 as a whole. According to the BCB's Focus Bulletin, the expected GDP decline went from 5.5% in mid-August to 5.1% in the first half of September, after the release of official IBGE data for July.
New OECD projections, released on Sep 16, 2020, also point to improvements in Brazil. A 6.5% drop is expected for the Brazilian GDP in 2020, that is, less serious than the 7.4% estimated in Jun/20. This revision of +0.9 percentage point for Brazil was, however, below that for the total world economy (+1.5 pp to -4.5%).
For now, however, the gap created by COVID-19 remains open. The service sector, in addition to having grown much less than in Jun/20 and also less than the other activities in Jul/20, is the furthest from recovering the losses from the pandemic: -12.5% in Jul/20 versus Feb/20, seasonally adjusted.
The segment with the greatest gap in relation to the pre-pandemic level are services provided to households, with -56.6% in relation to Feb/20; moreover, it remained negative from June to July (-3.9%). These activities are still very much affected by social isolation and the necessary health security protocols. In second place came transport services (-14.4%), mainly due to aviation, although they have remained positive in recent months (+2.3% in Jul/20).
The industry, in turn, is 6% below the output level of Feb/20, that is, before the COVID-19 shock. However, if there is one more month of growth similar to what we have seen lately the valley created in the Mar–Apr/20 period will be filled.
For some segments and certain regional industrial parks, the return to the pre-pandemic production level is much more distant. In Jul/20, capital goods (+15%) and especially durable consumer goods (+42%) showed a considerable expansion, but even so they remained 15.8% and 15.2% below the value for Feb/20, respectively.
The South Region concentrates the cases with the greatest gaps in relation to Feb/20: -11.2% in Rio Grande do Sul, -10.8% in Paraná and -9.5% in Santa Catarina. From June to July, the industry of Paraná did not even grow (-0.3% with adjustment) and the state (+7%) fell short of the total for Brazil. Important Southeastern industrial parks, such as São Paulo and Rio de Janeiro, have advanced further, more quickly closing the valley created by COVID-19 (-6% and -3.4%, respectively, compared to Feb/20).
Retail trade, on the other hand, has grown more steadily, driven by emergency government measures, especially the financial aid to informal and low-income families, and by the progressive relaxation of social isolation. In Jul/20, it was only 2% below the level of Feb/20 in its broad concept, but this was only due to vehicle sales. Taken in its narrow concept, retail is already 5.3% above the pre-pandemic sales level.
Of the 10 retail segments monitored by the IBGE, 4 were already operating at a level higher than in Feb/20: furniture and appliances; construction material; supermarkets, food and beverages and tobacco; and pharmaceutical, cosmetic and perfumery articles.
On the other hand, the gap remained very large in vehicles (-19.7%), books, newspapers and magazines (-26.2%) and clothing and footwear (-32.7%). All three of the worst-off segments experienced a significant slowdown from Jun/20 to Jul/20.