Letter IEDI n. 1224—Hoping for better days
At the beginning of the second half of 2023, the Brazilian industry remained in an unfavorable state, once again registering a decline in physical production: -0.6% compared to Jun'23, after seasonal adjustment, and -1.1% in relation to the same month last year.
Thus, the sector accumulates a 0.4% loss in the first seven months of the year covered so far by official IBGE data. If we disregard the extractive branch, that is, taking only the manufacturing industry into account, the decline in the period is even more intense, reaching -1.5%.
This sequence of poor results is nothing more than the consequence of a very broad set of macroeconomic distortions. It is worth emphasizing the high interest rates on loans for the industry, as well as the enormous tax burden that the sector endures, unlike other relevant activities such as agriculture and services. If we have a rapid advance in these two fields—which, although not exhausting the factors holding back production, are important—we can see the industrial sector growing again.
Thus, it is not surprising that the indicators on industrial entrepreneurs' assessment of the current business state remained in the region of pessimism in Aug'23, signaling another month of poor performance.
Despite this, there is hope for better days. The CNI survey on expectations for the next six months reached, in Aug'23, its best mark since Oct'22. Much of this is probably associated with the continuing reduction of the base interest rate (Selic) by the Central Bank and the signs of domestic market strengthening, according to the latest GDP data, which covered Q2'23.
For now, at the beginning of the second half, most industrial branches did not do well. In the seasonally adjusted series, 64% of the branches of the general industry failed to grow and, compared to the same period of the previous year, 68% of them lost production. Of the four macro-sectors, three contracted in both comparisons, notably capital goods.
Regionally, there were falls in 14 of the 15 industrial parks identified by the IBGE, in the seasonally adjusted series. Compared to Jul'22, in turn, the score was 61% of regional industries in the red versus 39% in the black.
Among the negative highlights is the automotive industry, which was in the red in both Jun'23 and Jul'23, indicating that the vehicle tax reduction program may have boosted retail sales, but has not yet had the desired effect on the sector's industrial output. Such performance has constrained the results of the durable consumer goods industry as a whole.
Compared to a year ago, no macro-sector was able to expand, and the worst results were due to capital goods (-16.9% against Jul'22), as has been the rule in recent months, and durable consumer goods (-3.5%). In the seasonally adjusted series, which is more representative of the short-term state, only semi-durable and non-durable consumer goods were in the black.
For capital goods, the recent signaling was of a deepening of their decline. The figures for production of mixed-use capital goods (-36.1% compared to Jul'22), capital goods for construction (-15.6%) and for transports (-13.8%) were the ones that had the greatest deterioration. Those for the energy sector (-29.0%) were also among the largest setbacks. Capital goods for the industry itself (-7.5%), although falling less than previously, have long remained in the red.
Intermediate goods have been able to avoid negative figures since last May, but in Jul'23 their output also did not increase. The sector registered 0% compared to Jul'22, with particularly poor results in agricultural pesticides (-24.9%), pulp (-7.4%) and automotive industry's intermediates (-6.9%). The situation was softened by intermediates for the food industry, which advanced 8.4%.
Another macro-sector that also came very close to stability in Jul'23 was semi-durable and non-durable consumer goods, with -0.3% in relation to Jul'22. In any case, this points to a deterioration, since in both Q1'23 and Q2'23 the sector had registered output increases. There was less intense growth in the meat and fuel segments and sharper declines in clothing (-9.6%) and pharmaceuticals (-5.6%).
Finally, durable consumer goods grew persistently between Jan'23 and May'23, but in Jun'23 (-4.0% against Jun'22) and Jul'23 (-3.5%) they recorded losses once more. Automobile production (-7.0%) was one of the main negative influences, as mentioned before, together with furniture (-11.5%), previously already in the red, and white goods (-2.4%), which avoided falls in the first two quarters of the year.