Letter IEDI n. 1126—Vegetative state
According to the latest IBGE data, last year came to an end with no major news regarding the level of economic activity. The industry, once again, was in the red in Nov'21; retail trade did manage to grow but, with a weak edition of the Black Friday, did not compensate for previous losses. Only services proved to be more dynamic, because, as we know, vaccination against COVID-19 opened the door for the normalization of the sector.
After adjusting for seasonal effects, physical industrial output dropped 0.2%, the sixth consecutive negative rate. Broad retail sales, which include the segments of vehicles, auto parts and construction material, increased 0.5% and services real revenue rose 2.4%.
Thus, mainly due to services, the Central Bank's IBC-Br index, which works as a GDP proxy, recorded a positive performance: +0.69% from Oct'21 to Nov'21. Despite this, the indicators for the end of 2021 are not favorable.
So much so that the new Focus Bulletin projections for 2021 GDP, released on Jan 21 2022, were revised downwards: +4.58%, that is, far from what was expected at the start of the second half of 2021 (5.3%). If we grew in 2021, it was, above all, thanks to the statistical effect inherited from the second half of 2020, when emergency measures supported some dynamism in the midst of the pandemic.
Without the basis of comparison to inflate the result, expectations for the Brazilian economy in 2022 make clear the vegetative state we are in. Also according to the Focus Bulletin, Brazil's total GDP should not exceed +0.29% in the current year. Even worse is the industry's scenario, as Focus’ respondents, for the first time, expect its 2022 GDP to be negative: -0.25%.
And it is not just domestic agents who recognize the lack of momentum in the Brazilian economy. Now in Jan'22, the IMF cut its GDP growth estimate for the country in 2021 from +5.2% to +4.7%. The 2022 GDP forecast was reduced to 1/5 of the rate that the Fund predicted in Oct'21, from +1.5% to +0.3%.
As the IEDI always points out, the story would be different if the industry were growing, as it encompasses a set of activities with a unique capacity to spread dynamism throughout the economic system. On the contrary, in Nov'21 the sector was at a production level 7.5% lower than that of Dec'20 and 4.3% below the pre-pandemic figure (Feb'20).
Retail was also not in a position to be celebrated. In Nov'21, the sector's real sales, in its broad concept, were 2.7% below the end of 2020 and 1.9% lower than in Feb'20.
The exception, as mentioned, was services, with real revenues 7.9% above the level of Dec'20 and 4.5% higher than in Feb'20. The problem is that, with the outbreak of the omicron variant, the risks of deterioration tend to be greater for service activities, either by the reintroduction of restrictive measures, or by consumers' fears of contagion.
The spread of omicron all over the world should also delay the end of the disorganization of productive chains, with direct effects on industrial output, which has already been suffering with other obstacles, such as the effects of the water crisis, rising interest rates, narrowing of markets (given the loss of purchasing power of the population), etc.
In 2022, in addition to all the uncertainties caused by the pandemic, Brazil will still have to deal with political uncertainties and doubts about which economic agenda will emerge from the electoral process, putting on hold many important private decisions that could inject dynamism to our country's economy throughout the year.