Letter IEDI n. 1255—Good signs
The year 2024 began with positive signs for the country's economic activity. Sales of retail trade and services expanded and, although the industry's aggregate figure was negative, this was due to a minority of its sectors and regional parks.
IBGE's monthly surveys showed an expansion of 2.4% in real retail sales and 0.7% in services from Dec'23 to Jan'24, seasonally adjusted. This ensured that the Central Bank's IBC-Br indicator, which acts as a proxy for GDP, registered a 0.6% increase in the period.
The figure for the industry, in turn, was of -1.6% in this comparison, offsetting the +1.6% growth rate of the final month of last year. But much of the decline was concentrated in the extractive sector, which registered -6.3%. Although manufacturing did not make progress, it was closer to stability, registering -0.3%, a result that was not enough to cancel out the expansion of Dec'23 (+0.7%, with adjustment).
As we have argued, the still high levels of interest rates in the country, contributing to depress investment decisions, have been a major obstacle to a greater dynamism of industrial production. Therefore, we still do not see results that point to a new phase of expansion, that is, a sequence of positive rates with some robustness.
Despite this, Jan'24 was not as bad for the industry as it seems at first glance: 68% of its branches and 60% of its regional parks showed an output increase in the seasonally adjusted series. Among the macro-sectors, those that did worst in 2023 grew in Jan'24, notably capital goods (+5.2%), but also durable consumer goods (+1.4%).
Another aspect to be highlighted is that in the comparison with Jan'23 not only the general industry but also all its macro-sectors grew. It is true that modest bases of comparison helped, but the 3.6% increase of the industry as a whole was the strongest since Jun'21 (+12.1%), when the sector was still responding to the negative effects of the COVID-19 pandemic of the previous year.
In retail, beyond occasional fluctuations, the last months of 2023 were marked by a low level of activity; therefore, the more robust and relatively widespread increase of Jan'24 opens the prospect of a more vigorous phase. According to the IBGE, there was growth in 60% of the branches of broad retail, with some of them managing to overcome the decline of the previous month, such as textiles, clothing and footwear (+8.5%) and other articles of personal and domestic use (+5.2%).
On the other hand, the branches that grew in Jan'24 but not enough to offset the decline of Dec'23 sell durable consumer goods, whose markets, as is well known, are more dependent on the credit and interest rate conditions of the economy. Those least able to recover previous losses were office, computer and communication equipment (+6.1%), followed by furniture and household appliances (+3.6%) and vehicles and auto parts (+2.8%).
As for services, the expansion in Jan'24 was a continuation of the reaction started in Nov'23, after three negative results in Aug–Oct '23 in the seasonally adjusted series. This movement was observed in 4 of the 5 segments identified by the IBGE (80% of them). The exception was services provided to households, whose drop (-2.7%) was not enough to cancel out the more robust expansion of Dec'23 (+4.3%).
Among those that grew in Jan'24 (in the adjusted series), the two branches that pulled total services up were information and communication (+1.5% against Dec'23) and professional, administrative and complementary services (+1.1%), which together represent about 45% of the sector's total.
It should be noted that, as in the industry, the performance of retail and services in relation to the situation a year ago is not only positive but also robust. Broad retail sales rose 6.8% in Jan'24 compared to Jan'23, consisting of the strongest increase in the last ten months. In services, the 4.5% advance was the most intense since May'23, which may mean the sector is starting to leave behind the path of relative sluggishness that marked the second half of 2023.
With mostly positive signs, GDP growth projections for 2024, which were close to +1.5% at the beginning of the year, are approaching 2%. The median expectations collected by the Central Bank's Focus Bulletin on March 15 2024 point to a 1.8% expansion this year.