From Feb'24 to Mar'24, unlike the norm in recent times, the industry led the dynamism of economic activity by registering an increase of +0.9%, after discounting seasonal effects, driven by the strengthening of manufacturing production.

The other major sectors of the economy underperformed. Services revenue was in the black (+0.4%, with adjustment), but the intensity of growth did not offset even half of the previous decline (-0.9%). Narrow retail sales were flat (0%) and broad retail, which includes the branches of vehicles, auto parts, construction material and wholesale-retail, declined 0.3%. 

This accommodation of services and the fall of retail had more weight than the expansion of the industry, so the Central Bank's IBC-Br indicator, which acts as a GDP proxy, varied -0.34%, with seasonal adjustment. It was the first negative sign since Oct'23 in the comparison with the immediately previous month.

As the IEDI has been pointing out, the situation of the industry at the beginning of this year showed progress in relation to the recent trajectory. Some good news is that the results for the last few months were revised upwards in the latest IBGE release: reduction of the Jan'24 drop from -1.5% to -1.1% and change in sign for Feb'24, from -0.3% to +0.1%, always with seasonal adjustment.

Despite this, there are already uncertainties and obstacles ahead. And not just for the industry, it is worth mentioning. We can highlight the concerns of the monetary authority about a slower than expected disinflation process, which led to a reduction in the size of the Selic cut from 0.5 percentage point to 0.25 p.p. at the beginning of May’24. And even more immediate, the adverse shock derived from the climate disaster in Rio Grande do Sul.

For now, official data do not reflect these factors, so in Q1'24 all major sectors expanded compared to a year ago. As a result, the IBC-Br indicator recorded an increase of +1.04%, in line with the average dynamism of the second half of last year (+1.26% in the year-on-year comparison).

The performance in early 2024 has motivated upward revisions to the Brazilian 2024 GDP. In Apr'24, the IMF estimated an expansion of +2.2%, that is 0.5 p.p. above its projection of Jan'24. In May'24, the OECD updated the Brazilian GDP result to +1.9%, or 0.1 p.p. above its Feb'24 scenario. The Ministry of Finance, in mid-May'24, raised its projection for 2024 from +2.2% to +2.5%.

In Q1'24, the industry as a whole registered +1.9% compared to Q1'23, continuing the positive evolution recovered in the last quarter of 2023 (+1.1%) and now with greater vigor. There was expansion in 3 of its 4 macro-sectors, in 64% of its branches and in 89% of the regional parks.

The industrial sector, which had been underperforming last year, is now the one with the clearest quarterly acceleration trajectory and no longer has the weakest result among the sectors analyzed here. It is important to note that the bases of comparison helped, as 2023 was not a favorable year for the sector.

Services’ performance, in turn, remained modest. In Q1'24, real revenue grew +1.2%, interrupting the quarterly deceleration that the sector had been presenting and that had taken it to the red in Q4'23 (-0.5%). Even so, the sector fell short of the industry's performance and is in a very different situation from Q1'23, when it increased 5.5%, always in relation to the same period of the previous year. 

Although 3 of the 5 branches monitored by the IBGE did better in Q1'24 than in Q4'23, the overall result of the sector was reinvigorated mainly due to information and communication services (+5.5%), which represent almost ¼ of the total revenue of services. 

It is also worth mentioning the branch of other services, which brings together a diverse set of activities. In this case, the considerable drop of 4.4% in Q4'23 gave way to an expansion of 1.5% in Q1'24, leveraged by real estate services (+4.1%) and financial services (+1.7%).

As for retail, the increase in Q1'24 compared to Q1'23 was the most intense since the sector returned to positive ground. This was the case in both its narrow concept (+5.9%) and its broad concept (+4.6%). By way of comparison, performance in Q4'23 was 1.3% and 2.6%, respectively.

The point of attention is that growth was very concentrated. In Q1'24, only 4 of the 11 retail branches monitored by the IBGE in the year-on-year comparison (or 36% of them) managed to increase sales, the smallest portion with positive rates since the end of 2022, when retail stopped falling. By Q4'23, 8 branches had grown.

Two branches were decisive for this aggregate evolution: supermarkets, food, beverages (+8.0% against Jan–Mar'23) and vehicles and auto parts (+9.4%), which together were almost entirely responsible for the expansion of retail in the first quarter of the year.

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