Letter IEDI n. 1116—Industrial setback and GDP weakening
Signs of weakening economic activity have been piling up as we move towards the end of the year. The 3rd quarter of 2021 ended with widespread losses in all major sectors of the economy, leading to another round of reductions in GDP projections for both the present year and 2022. As some had predicted, overcoming the COVID-19 crisis has not been an easy task.
In Sep'21, the decline was led by retail trade which, in its broad concept, registered -1.1% compared to Aug'21, followed by services, with -0.6%, and then the industry, whose 0.4% fall was its seventh negative rate in the seasonally adjusted series in the nine months of 2021 covered by IBGE statistics.
As a result, the Central Bank's IBC-Br indicator, which works as a GDP proxy, showed a drop of 0.27% from Aug'21 to Sep'21. Since the end of October, market expectations collected by the Focus Survey point to Brazilian GDP growing less than 5% in 2021 and last week they also signaled, for the first time, a rate below 1% for next year: 4.88% in 2021 and 0.93 in 2022. It is worth remembering that, at the beginning of the current half-year, the projections were 6% and 2.3%, respectively.
Although retail has moved backward more strongly in Sep'21, under the negative effect of inflation acceleration and very high unemployment, it is the industry whose evolution throughout 2021 has left something to be desired. Industrial losses are happening month after month in the wake of the disorganization of supply chains, the fall in the population's purchasing power and the rise in interest rates and economic policy uncertainties. The path of total GDP would be different if the important growth lever that the industry represents was at work.
The industrial setback is clear: at the end of last year the sector was 3.3% above the pre-pandemic level (Feb'20) while in Sep'21 its production was 3.2% below that mark. In 2021, what was gained in the aftermath of the COVID-19 initial shock was lost, so much so that in Sep'21 versus Dec'20 there was a drop of 6.3%.
Retail trade, which managed to register a few months of growth in 2021, did not move backward as much as the industry in recent months, but in Sep'21, in its broad concept, real revenue was 2.6% lower than in Dec'20 and 1.7% below the pre-pandemic figure. In other words, it also lost the gains that the emergency aid and other emergency policies had helped the sector achieve in the second half of last year.
Even the year-on-year rates, which for some time were favored by the low bases of comparison, do not manage to hide the signs of a slowdown. In Q3'21 compared to Q3'20, the industry recorded -1.1% and narrow retail -1.3%. If sales of vehicles, auto parts and construction material are included, the performance of retail this quarter is no longer negative, but reaches only +0.9%.
This negative performance has widespread among both retail (50%) and industrial (54%) branches, but hit durable consumer goods more seriously. Its industrial production fell 16.9% in Q3'21 and furniture and household appliances (-18.2%) led retail losses in this period, followed by office, computer and communication equipment (-9.6%).
Services, in turn—whose recovery was slower than the other sectors' as the second wave of contagion by the coronavirus interrupted the normalization of several activities—for now have shown fewer signs of inflection, keeping their upward path.
In Sep'21, despite the negative rate in relation to the previous month, services’ real sales were 7.1% above the level of Dec'20 and 3.7% above the pre-pandemic figure. This means that, unlike retail trade and the industry, 2021 has been a favorable year for the sector, in large part thanks to the advance of vaccination against COVID-19.
In Q3'21 compared to the same period last year, services grew 15.2%, given the still depressed bases of comparison. Although all branches were in the black in this comparison, some of them still have a long way to go before resuming pre-pandemic revenue levels, such as air transport (-17.6%), services provided to households (-16.2% versus Feb'20) and administrative and complementary services (-4.4%), which generally comprise less qualified activities outsourced by companies.