Letter IEDI n. 1151—Industry at low speed
The Brazilian industry recorded a positive variation in May'22. It was the fourth consecutive month in the black, but the problem of lack of robustness remained, so this sequence of positive rates was barely able to compensate for the contraction early in the year. Thus, the sector remains below the pre-pandemic figure and accumulates a decline of 2.6% in Jan–May'22.
That is, the current situation still presents vulnerabilities for the sector, which will have to face a scenario of lower economic growth in the second half of the year. This is what most analysts expect, given the sluggish transmission of the increases in the base interest rate (Selic) promoted by the Central Bank, the resistance of the inflationary process, the tensions of the electoral period, etc.
From Apr'22 to May'22, after discounting the seasonal effects, the industry's result was only +0.3%. Most of its branches (73%) and regional parks (73%) managed to avoid the negative terrain, but many of them grew very little. If we add those that were close to stability to those that lost production, we arrive at a not insignificant portion of the industry: 53% of regional parks and 42% of its branches.
Thus, recent developments, although favorable given that we had not seen consecutive months of expansion since 2020 (when low bases of comparison helped a lot), have not spared the industry from a negative result in the first half of the year. This is suggested by the figures for Jan–May'22 versus Jan–May'21.
In this comparison, which gives us a preview of the result of the first half of 2022, industrial production decreased 2.6%, as previously mentioned. It is worth noting that in the last twelve months, which is a much more stable trend measure, there was also a decline since April, reaching -1.9% in May'22.
Considering the economic sectors, the picture follows the national industry's. Output fell in 73.1% of the branches and in 62.1% of the more than eight hundred products monitored by the IBGE. In addition, all four macro-sectors contracted.
Among the latter, the biggest drop, as has been the case for some time, was seen in durable consumer goods, with -14.1% compared to Jan–May'21; negative double-digit rates were registered in most of its segments, such as household appliances, furniture and the automobile industry.
This part of the industry is greatly affected by the increase in interest rates to consumers, who in general need credit to acquire these goods. Thus, despite the still depressed bases of comparison, these consumer goods should continue to face difficulties in the coming months.
The other macro-sectors accumulate much less significant falls. Semi-durable and non-durable consumer goods, for example, registered -1.5% in Jan–May'22, with growth in petroleum products, beverages and meat production, for which the foreign market is an important source of demand.
Intermediate goods, in turn, fell 2.1%, with poor performance of food intermediates, textiles and basic metallurgy, in addition to the production of packaging and inputs for civil construction.
Capital goods remained in the best situation, but still declined 1.1% in the first five months of the year. As the sector’s change of direction is more recent, it is the only macro-sector that still registers growth in the last twelve months to May'22 (+10.4%).
In 2022, at least until May, the great obstacle to the production of capital goods comes from the part of the sector that manufactures for the industry itself. We are approaching the third consecutive quarter of a drop in production of capital goods for the industry: -9.5% in Q4'21; -13.4% in Q1'22 and -7.7% in Apr–May'22 (always in relation to the same period of the previous year).
Alongside this movement there is a deterioration in the confidence of industrial entrepreneurs compared to a year ago. Despite some recent recovery, according to both the CNI and the FGV indicators, at the end of the first half of 2022 the confidence of the sector was below that registered in mid-2021.
Rising interest rates, less confidence and lower production of capital goods for the industry are unpromising signs for the evolution of investment in the sector, just the opposite of what would be necessary to move faster towards the so-called industry 4.0.