Economic activity in Q1'23 was marked by an important asymmetry. On the one hand, weakening of domestic demand, with contraction of the industry and accommodation of services, and, on the other hand, strong expansion of agriculture and livestock and positive contribution of the external sector. The 1.9% GDP increase in relation to Q4'22, after seasonal adjustment, and the +4.0% rise against Q1'22, are to a large extent a result of such dynamics.

The data recently released by the IBGE show a new slowdown in household consumption, which in the seasonally adjusted series was virtually flat (+0.2%), and a drop in investment: -3.4%, after having already contracted 1.3% in the final quarter of last year.

On the supply side, sectors more associated with the domestic market, such as retail trade (+0.3%, with adjustment), real estate activities (+0.3%) and other services (-0.5%) did not do well. Manufacturing (-0.6%) fell for the third consecutive time and construction (-0.8%) for the second time. 

Only agriculture expanded, registering 21.6% compared to Q4'22, with seasonal adjustment, largely thanks to the soybean crop. Still, although we are major exporters of these products, the country's total exports have not avoided negative ground (-0.4%). The external sector made a positive contribution only thanks to the intense decline in imports (-7.7%), influenced by the slowdown in the domestic market.

This trend had already been signaled by the monthly surveys released by the IBGE. At the beginning of 2023, the performance of industrial output fell short of other sectors of the economy. 

In Mar'23, the most recent data available, the general industry's output managed to grow 1.1% in the adjusted series, but after oscillating very close to zero since Nov'22. Broad retail registered 3.6%, largely due to vehicles and auto parts, and services’ revenue expanded moderately, as did their GDP.

In Q1'23 versus the same period of the previous year, Brazil's GDP increased 4.0%, driven exclusively by agriculture and livestock, which rose 18.8%. The other sectors grew less than total GDP: +1.9% in total industry and +2.9% in services. Manufacturing GDP (-0.9%) was the only one to stay in the red.

The evolution of the physical production of the sector also pointed in this direction: -1.0% in Q1'23 compared to Q1'22, leading the general industry's output to a 0.4% contraction. In all, 72% of the regional parks of the Brazilian industry failed to grow in the period, including São Paulo, whose output fell 3.0%.

In the general industry, the return to negative figures in Q1'23 was due to half of its macro-sectors, especially capital goods (-6.3% against Q1'22), pointing to a weaker investment performance, as GDP data confirmed.

As for retail trade, real sales returned to positive figures, after three consecutive quarters in the red. The increase was of 3.3%, with six of its eleven branches with positive rates (54.5% of the total).

Among the retail branches that grew in Q1'23, the highlight was vehicles and auto parts, which, by registering 5.0%, interrupted a sequence of three consecutive quarterly declines. Another positive highlight was the supermarket, food, beverage and tobacco branch (+2.6%), whose sales maintained the upward trend seen at the end of last year. Together, these two branches account for almost half of broad retail.

Although the result of real services’ revenue continues to be more robust than other sectors', it did not fail to present some accommodation. From Q3'22 to Q1'23, the growth rate decreased by 1/3, from +8.1% to +5.8%, respectively.

The recent slowdown was led by services provided to households, transport, their auxiliaries and mailing, as well as professional, administrative and complementary services and other services, which bring together a diverse set of activities.

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