Letter IEDI n. 1110—Systematic decline
The year progresses and the industry continues to lose production, due to both supply and demand obstacles. In Aug'21, its output fell 0.7% in the seasonally adjusted series. It was the sixth negative figure in the eight months already covered by the IBGE survey. Even the depressed bases of comparison no longer mask the lack of dynamism.
In the year-on-year comparison, the industry dropped 0.7% in Aug'21, after eleven consecutive months of growth, foreshadowing a weak third quarter for the sector. With higher bases, given the revival in the second half of 2020, the result for Jul–Aug'21 versus Jul–Aug'20 was a mere 0.3%.
The diffusion of adverse signs is also expressive across industrial activities. In Aug'21, 15 of the 26 branches monitored by the IBGE were negative in relation to Jul'21 (58% of the total) and 19 (73%) were at a lower level than the pre-pandemic mark, that is, below Feb'20. From a regional point of view, the picture was a little better, with 7 of the 15 industrial parks falling (47%) in relation to Jul'21 and 9 of them below Feb'20 (60%).
Among the industrial macro-sectors, the worst performance came from durable consumer goods, as had been happening in previous months. From Jul'21 to Aug'21, with seasonal adjustment, this was the macro-sector that fell the most: -3.4%. It is also the furthest from the pre-pandemic level (-21.8% against Feb'20) and the one accumulating the greatest loss early in the second half of this year compared to the same period last year (-13.8 % versus Jul–Aug'20).
In contrast, with a much superior performance are capital goods, although they presented an accommodation in Aug'21 compared to Jul'21 (-0.8% with adjustment). Production in the sector is 15.8% above the pre-pandemic level and it registered an increase of 31.8% in Jul–Aug'21 against the same period of the last year, driven mainly by capital goods for construction (+67.4%) and for transportation (+47.9%).
The other macro-sectors are not doing well either. Intermediate goods have fallen steadily over the past five months. Now in Aug'21 the drop was of 0.6% compared to Jul'21. In relation to Jul–Aug'20, the decrease was of 1%. Semi and non-durable consumer goods, in turn, have alternated highs (as in Aug'21: +0.7%) and lows, but the final result is negative. In Jul–Aug'21, compared to the same period of the previous year, it registered a decline of 1.4%.
The obstacles to a positive environment for the industry in 2021 are of different natures. On the supply side, there are bottlenecks in obtaining inputs and cost pressures; on the demand side, inflation erodes the population's purchasing power in a context of high unemployment. Furthermore, the environment of uncertainty remains, with new sources of risks coming from the water crisis and the political tension.
CNI data show that inventories remain below the planned level in most industrial sectors, which maintains production chains vulnerable to scarcity of inputs. In Aug'21, this was the situation in 21 of the 26 branches analyzed by the CNI. There has been some progress compared to the end of last year, when 96% of branches had lower than planned inventories, but this share remains high (81% in Aug'21).
Given the recent evolution of the industry, the confidence of industrial entrepreneurs, measured by the CNI as well as the FGV indicators, has been deteriorating, although it still remains in the zone of optimism. The Central Bank Focus Bulletin projections for the performance of industrial production and industrial GDP in 2021 and 2022 have been reduced since the end of Aug'21.