Letter IEDI n. 1166—Economic activity contraction in August 2022
The level of activity of the Brazilian economy declined in Aug'22, despite all the actions that the government has taken to stimulate household consumption, such as the release of FGTS funds, the anticipation of the 13th salary of retirees and pensioners and, more recently, the increase to R$600 in the amount of the Brazil Aid, the gas voucher, trucker voucher and taxi driver voucher, as well as ICMS cuts.
Both industrial output and broad retail sales decreased 0.6% from Jul'22 to Aug'22, after correction for seasonal effects. The exception among the large economic sectors continued to be services, whose real revenue increased +0.7%, its fourth consecutive positive rate.
The aggregate result, however, was negative. According to the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, total activity contracted 1.13% in Aug'22, offsetting much of the expansion recorded in the previous month (+1.67%).
Services have been favored by higher mobility of people and the return of face-to-face activities, with the control of COVID-19. Pent-up demand has also been beneficial, especially purchases by higher-income households that managed to keep their jobs during the pandemic, and who can now recompose the share of services in their consumption baskets.
From Jul'22 to Aug'22, the increase in revenue was driven by services provided to households, notably accommodation and food, and by the branch 'other services', which brings together a diverse set of activities. In all, 3 of the 5 services’ branches identified by the IBGE registered rises, which makes it a favorable score in Aug'22.
In addition, those who did not grow were flat, avoiding losses. The branch of professional, administrative and complementary services was stagnant, with real revenue registering 0%, free of seasonal effects. On the other hand, the branch of transport, postal services and storage was in the red, but with a variation of only -0.2% versus Jul'22.
The rebound of the share of services in households' consumption basket may also be draining resources previously directed to the purchase of some goods, such as durable goods. In addition, inflation and rising interest rates also tend to compromise the performance of retail trade.
Although retail as a whole is struggling, a majority of its segments (60%) managed to avoid negative figures in the transition from Jul'22 to Aug'22 (after seasonal adjustment) but, except for fuels, the recent increases only partially offset the immediately previous losses
The supermarket, food, beverages and tobacco segment, directly favored by the government's countercyclical actions, managed to halt the shrinkage in real sales, recording +0.2%. Real sales of fuel, given the price reduction resulting from changes in ICMS collection, fared better (+3.6%) and in Jan–Aug'22 were responsible for one of the most intense advances (+10%).
Many segments of durable consumer goods, in turn, have not even been able to grow again, such as office, computer and communication equipment, as well as construction materials and other personal and household items, which include department stores.
As retail is an important outlet for industrial production, the obstacles faced also do not help the industry, whose performance still suffers from bottlenecks along supply chains.
Since May'22, the country's industrial production has been fluctuating a lot, without presenting any defined trend. Everything that is gained in a month is lost in the following month and in Aug'22 it was no different. The sector registered -0.6% in the seasonally adjusted series, canceling out July's 0.6% increase.
Sectorally, the performance of the industry as a whole has been greatly influenced by a small portion of branches. In Aug'22, output losses were concentrated in 31% of the branches monitored by the IBGE, especially textiles, coke, petroleum products and biofuels, the extractive sector and food. Thus, the two worst performing macro-sectors were intermediate goods (-1.4%) and semi-durable and non-durable consumer goods (-1.4%).
Regionally, the recent contraction was more widespread. Of the 15 regional industries monitored by the IBGE, 7 lost production in the adjusted series. The negative highlights included the parks with the largest participation of the extractive sector, such as Pará, responsible for the worst result in Aug'22, Espírito Santo, Minas Gerais and, to a lesser extent, Bahia. The Rio-SP axis, however, was part of the group with positive figures.
São Paulo, which between May and July remained close to stability, managed to grow +2.6% in Aug'22, after discounting seasonal effects. In Jan–Aug'22, however, it continued to contract (-1.7%) as did the aggregate figure for Brazil (-1.3%). Together with São Paulo, 7 more regional parks registered declines in Jan–Aug'22, that is, 53% of regional industries.
Rio de Janeiro, however, whose production increased +3.3% from Jul'22 to Aug'22, seasonally adjusted, diverges from São Paulo and the total for Brazil, registering an output increase of 3.8% in the year, thanks to production of food, petroleum products, pharmaceuticals and pharmacochemicals and other transport equipment.