Letter IEDI n. 883–Industry in August 2018: various perspectives of the industrial anemia
There is no doubt that, with or without the truckers' strike, the path that the industrial sector has been following in 2018 will not take it very far. The gain in momentum expected for the first half of the year did not happen and now the uncertainties derived from the political environment, which have led to sharp exchange rate fluctuations and risk premium spikes, are associated with the sluggishness of the economy, imposing additional difficulties to the industry.
Thus, industrial output growth has been fading since the end of last year. It went from +1.7% in Q4/17 to +0.2% in Q1/18 and reached -2.6% in Q2/18, after the elimination of seasonal effects. Afterward, it remained in the red in both July and August, varying -0.1% and -0.3%, respectively.
Truth be told, except for the bumps of May and June due to the truckers' stoppage, only April registered a noteworthy positive result, which was still of only 0.9% (in the series with adjustment). All other months saw either falls or virtual stability.
In August, specifically, the overall result was negatively influenced by one-off events in the oil and fuel industry, but this does not work as a mitigating factor. It is enough to observe that out of the 26 branches followed by the IBGE, about half (i.e., 14) registered contractions in relation to July, after seasonal adjustment. Localized causes aggravated the bad performance, but they do not fully explain industrial anemia, which can even be captured from other perspectives, such as:
• Production level in August 2018, adjusted for seasonality, is 1.1% below December 2017, when the industry seemed about to start growing faster.
• Not only the sector as a whole, but no less than 17 of the 26 branches identified in the IBGE survey operate at production levels lower than in Dec/17, especially Other transport equipment (-14.7%) and Computer equipment and Electronic products (-13.7%).
• As the reactivation of the sector is slow and discontinuous, the general industry remains at a production level more than 14% below its recent peak, which is even more serious in the case of capital (-31.7%) and consumption (-22.6%) goods.
• As a result, 2018 has not given any additional contribution to industrial recovery. In January-August, the 2.5% increase (in relation to the same period of the previous year) indicates the same average speed of 2017, whose aggregate result from January to December was also +2.5%.
• Capacity utilization remains low by historical standards and has not improved much since the beginning of the year. According to the FGV, the utilization indicator was 76% in Aug/18, against a historical average of 80.2%.
• Manufacturing entrepreneurs' assessment of the current conditions of their business has only deteriorated. The CNI indicator fell from 54.1 to 48.4 and finally to 46.1 points from Q1/18 to Q3/18. The FGV suggests the same evolution: from 100.3 to 98.7 and 97.4 in each of the three quarters of the year.
As the industry is an important driver of economic growth due to the numerous interactions it establishes with other sectors, its disappointing performance in 2018 has been accompanied by downward revisions of the economy's overall GDP. The Central Bank's Focus survey, for example, shows a drop in expected GDP growth from something like 3% to just 1.3% from the start of the year to now. In the case of industrial GDP, expectations declined from 3.5% to 1.6%.