Letter IEDI n. 853–Widespread highs
April showed signs that economic recovery could, in the second quarter of 2018, regain the momentum lost in the first months of the year. The results were positive in all major economic sectors and relatively disseminated among their activities, with a growth rate similar to the end of last year’s. Unfortunately, this situation is unlikely to continue, as the interruption in road freight transport seriously undermined the dynamism of May.
In April, retail trade registered the best performance (in the seasonally adjusted series), reaching +1.3% in real sales — in the broad concept, which includes vehicles, auto parts and construction materials (+1% in the narrow concept). The industry, in turn, recorded a 0.8% output increase, the greatest value of 2018. The month was good even for the services sector, which until then barely showed any signs of recovery. Its real revenue grew for the first time in 2018: +1% compared to March, with seasonal adjustment.
In light of these developments, the IBC-Br indicator of the Central Bank (BCB), which acts as a proxy for GDP growth, also reached the best mark of the year, poiting to an expansion of 0.5% in relation to March, seasonal effects eliminated. This result, however, was enough to counterbalance March's decline only (-0.5%).
Thus, as May is likely to be a month of losses, recovery in the first half of the year may depend on the performance of only two months, April and, perhaps, June. It is better than nothing, but still not enough, especially to face a possible second-half volatility due to the elections. In fact, according to the BCB's Focus bulletin, expectations for GDP growth in 2018 fell from + 2.7% in January to + 1.76% in mid-June. This suggests the recognition that the recovery, known to be slow, has lost even more strength.
It does serve as some consolation that investments do not seem to be waning. IPEA's indicator of Gross Fixed Capital Formation recorded a 1.5% increase in April compared to March. As a result, there were three positive changes, leading to a +2% result in the quarter ended in April (seasonal effects excluded), reflecting, to a large extent, the expansion of imports of capital goods (+13.9% against Mar/18).
Even so, we have a long way until we turn the page of the recent crisis. Just look at how far we still are from the previous peaks of activity level. In the industry, April's level of physical production was 14.6% below the highest point of its historical series, reached in May 2011. In retail, in its broad concept, the discrepancy is of 11.5% against August 2012 maximum (-6% in narrow retail) and in services, of 11.8% in relation to the peak of November 2014.
At least April's figures, for being positive, helped to slightly shorten the long road to be trodden until the losses of the last few years are recovered. This was particularly true in some segments of the industry, trade and services, as they achieved even stronger performance.
In the case of the industry, intermediate goods was the most favored macro-setor in April, since it obtained its first positive variation of 2018 in the seasonally adjusted series (+1.0%). But it was durable consumer goods that grew more sharply: +2.8%, leveraged by the production of vehicles (+4.7% in relation to March/18). Capital goods grew 1.4% and semi-durable and non-durable consumer goods, only 0.5%.
Although positive and more robust, industrial performance could have been better in April were it not for the low dynamism of São Paulo, which increased 0.3% only. Thus, growth was pulled by other areas, especially the Northeast (+5.6%), Minas Gerais (+4.4%), Rio de Janeiro (+6.0%) and Paraná (+3.3%). Overall, 10 of the 15 areas surveyed by the IBGE were in the black in April.
In retail, more than the magnitude of April's expansions, the most favorable aspect concerns the good trajectories, especially in three sizeable segments: supermarkets, food, beverages and tobacco (+1% versus Mar/18, with adjustment); vehicles and auto parts (+1.9%) and construction material (+1.7%). Although they have not been spared of low dynamism episodes, these segments have been growing since April last year, recording only occasional falls.
In services, which still rehearses its first steps of recovery, the evolution is in unsatisfactory in most cases. In recent months, the best that was achieved was in the segment of services to households, which, after an almost stagnant first two months, started to grow more substantially in both March (+2.8%) and April (+1.5%). In other segments, such as professional, administrative and complementary services; transport, its auxiliaries and mail; and other services, April was also positive, but the trajectories have oscillated between ups and downs since the beginning of the year.