The most recent IBGE data showed that, in May'24, the industry registered an output decline for the second consecutive time. The rates were -0.9% compared to Apr'24, with seasonal adjustment, and -1.0% against May'23. This time, the impacts of the climate disaster in Rio Grande do Sul were felt and, unlike in the previous month, all macro-sectors and most industrial branches were in the red.

The promising early year signs of a more robust performance are giving way to a more nebulous scenario, not only due to the paralysis of productive activities due to the rain in the south of the country, but also due to the interruption of the phase of base interest rate (Selic) cuts. Add to these the recent rise in risk aversion in the financial markets, which has caused sudden movements of exchange rate depreciations, renewing uncertainties in relation to the trajectory of inflation and rising production costs in many sectors.

Episodes of political tension, especially between the Executive and Legislative branches, also hinder the scenario for an adequate regulation of the tax reform, in order to ensure the lowest possible standard rate with broad incidence on economic activities. There is the risk that the industry will continue to bear a disproportionate share of the tax burden.

In view of this, the expectations of entrepreneurs in the sector for the coming months fell in June'24, which in the case of the CNI indicator also affected the assessments of current business conditions, signaling a weak end of the first half of the year.

In May'24 (-0.9%), although the result was very close to that recorded in Apr'24 (-0.8%), in the seasonally adjusted series, there are important differences that will be highlighted below. 

First, this time it was manufacturing that was in the red (-2.2% compared to 0% in Apr'24), while the extractive branch recovered part of the previous loss (+2.6% versus -3.2% in Apr'24). In the manufacturing industry, as is known, there are more complex activities and longer production chains, and so it is better able to spread economic dynamism.

Second, all macro-sectors lost output, as previously mentioned. The falls were more intense precisely in those that had been driving growth at the beginning of the year: -5.7% in durable consumer goods and -2.7% in capital goods, after seasonal adjustment. Both sectors are more sensitive to interest rates and credit conditions.

Third, 16 of the 25 industrial branches monitored by the IBGE showed a decline in production from Apr'24 to May'24, representing 64% of the total. In the previous month this figure had been 32%. The worst case was the tobacco sector (-28.2%), very concentrated in the southern region, but other important industrial branches, such as vehicles (-15%) and electrical machinery and appliances (-8.5%), also declined.

Despite these short-term indications, 2024 is still more positive than last year. The year-on-year figures for the first five months already covered by IBGE surveys illustrate the difference: +2.5% versus -0.3% in Jan–May'23.

Capital goods (+4.1%) led industrial dynamism in Jan–May'24, with the help of low bases of comparison. The segment of capital goods for the industry itself is back to the black (+3.4%), although it is capital goods for transport (+12.1%) and mixed use (+11.3%) that have grown the most.

Semi-durable and non-durable consumer goods also not only remained in the black in May'24 (+2.6%), but also gained speed in the last two months covered by official data. They registered a 3.8% output increase in Jan–May'24, the second best result, and rose 6.8% if we consider only the most recent period of Apr–May'24, always in relation to the same period of the previous year.

Among their segments, textiles and clothing left the negative ground in the last two months (+8% and +8.8%, respectively), as did the pharmaceutical industry (+0.3%). Dairy, meat and fuel also gained strength.

Durable consumer goods, with a +2.8% increase in the first five months of 2024 and +5.7% in the last two months in question, did not fare better only due to the decline in vehicle production, which was of -6.5% in Apr–May'24, adding to the losses of -5.9% in Q1'24 and -6.8% in Q4'23.

Intermediate goods, in turn, grew +2.0% in Jan–May'24, but slowed down in the last two months, registering +1% due to oil products, which went from +7.3% in Q1'24 to -3.7% in Apr–May'24, and the steel industry, from +2.9% to 6.0%, respectively.

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