Letter IEDI n. 1152—May 2022: a month of little dynamism
Although countercyclical actions have been taken by the government in an attempt to avoid an economic slowdown in the second half of the year, in the wake of the contractionary effects of the Central Bank's interest rate hike and the loss of purchasing power of the population derived from inflation, for now, their effectiveness is still to be seen.
As has been frequent in recent years, there was a new release of FGTS funds and anticipation of the 13th salary of retirees and pensioners, but even so, in May22 the industry and retail trade barely moved, despite avoiding negative rates. As for services, they expanded again, with the help of the reopening of businesses and the recovery of demand, which until recently was depressed by the pandemic.
In relation to Apr'22, after discounting seasonal effects, industrial production varied only +0.3% and real retail sales only +0.2%, taking the sector in its broad concept, which includes the automotive, auto parts and construction material segments.
In the industry, the halt was due to intermediate goods (-1.3% versus Apr'22); in retail, mainly to the branches of durable consumer goods—whose markets demand credit and greater household confidence—such as construction material (-1.1%), vehicles and auto parts (-0.2%), other articles for personal and domestic use (-2.2%) and furniture and household appliances (-3.0%). Some of these retail branches remain very distant from pre-pandemic sales levels.
As the domestic market is important for the durable consumer goods' industry, such performance in retail also brings doubts about the expansion of industrial output in this sector, which also tends to be the most affected by the supply chains' bottlenecks, since it demands a large number of components, often imported.
In May'22, the durable consumer goods industry grew (+3.0%), but not enough to compensate for the loss of the previous month (-5.3%). Capital goods did better, with +7.4% in May'22 and -6.8% in April'22, and semi-durable and non-durable consumer goods were almost flat (+0.8% in May'22).
Regionally, most industrial parks also avoided losses. Of the 15 locations surveyed, 12 did not lose production in the series with adjustment. Despite this, which is still a favorable aspect of the latest IBGE data, the performance of some of the country's main industrial centers was so weak that it was nothing more than mere stagnation; this was the case in São Paulo (+0.3%), Minas Gerais (+0.1%), the Northeast (0%) and, to a lesser extent, Rio Grande do Sul (+0.7%).
With a month closer to stability than expansion for the industry and retail, the Central Bank's IBC-Br indicator (a proxy for GDP) showed a decline of 0.11% from Apr'22 to May'22, after eliminating seasonal effects. In the previous month, it had also been negative, at -0.64%.
The situation was no longer adverse in the fifth month of the year, due to the service sector, whose real revenue increased +0.9% in the adjusted series. All of its five segments monitored by the IBGE were in the black, notably services provided to households (+1.9%) and other services (+3.1%), a branch that includes a diverse set of activities, such as financial, urban, real estate, etc.
As this is a very labor-intensive sector, the recent evolution of services is good news for employment. After the revival phase due to the control of the pandemic, the question that remains is whether, in a context of high inflation, the dynamism of services will remain.
For now, the +1% increase in Brazil's total GDP in Q1'22 and the announcement of additional countercyclical measures in the second half of the year have led to upward corrections to the economy's growth projection for 2022. The Central Bank's Focus Bulletin, which brought a figure of +1% at the end of May'22, now in mid-Jul'22 indicates an increase of +1.6%.
Even so, there is risk of a more modest performance, starting with the fiscal impact of the countercyclical measures in the process of being approved, with adverse effects on investor confidence and the long-term interest curve, and the cooling-off of the world economy. The most recent (Jun'22) OECD and World Bank outlooks brought a reduction of their projections for global GDP by 1.5% and 1.2% in 2022 compared to what they expected at the beginning of the year.