Letter IEDI n. 884–More of the same
After the disturbances of May and June (due to the truck drivers' standstill) and a second half that started with conflicting signals, the level of economic activity seems to have partly recovered strength in August. The situation, however, demands caution not only because the industry has not reacted for two months in a row, but also because positive results, such as retail trade's, may have been helped by one-off factors.
In August 2018, retail trade registered the best performance among the large economic sectors: considering the narrow concept of retail, real sales reached a 1.3% high in relation to July (after seasonal adjustment). This was the greatest increase of the year in this type of comparison and resulted from positive rates in the great majority of its segments, as only one of them was in the red. In the aggregate concept —which includes vehicles, auto parts and construction material— the variation was +4.2%.
Low inflation, more credit and some improvement in employment have all contributed. But it should also be noted that August’s robust figures may have been boosted by the increase in the release of PIS-PASEP resource, a one-off event. Therefore, the strong result observed may well not happen again in the following periods.
Services, whose markets are more connected to current income and to the general level of economic activity, also showed a positive performance in August: +1.2% against July, after seasonal adjustment. However, the trajectory of the sector has been marked by a strong alternation between ups and downs, especially after the truck drivers' strike. This has occurred in most of its different segments.
In addition, August was not a comprehensively favorable month for services. Two of its five segments experienced real revenue losses in relation to July. They were: information and communication services, for which the crisis is still very much present, and services provided to households, strongly restricted by the low growth of income and employment. The other three segments grew only enough to partly compensate for the falls of the previous month, with the exception of professional, administrative and complementary services.
If services and retail advanced in August (the latter more than the former), the same cannot be said of the industry, whose production has gone down once again. The -0.1% and -0.3% drops in June and August, respectively, are small but more than enough to indicate that the sector started the second half of 2018 practically stagnated, which was observed both in aggregate terms as well as for most of its branches. Indeed, 14 of the 26 segments followed by the IBGE were in the red, indicating that the technical stoppage in a São Paulo refinery is only one factor behind the poor aggregate performance of the sector.
Geographically, the industrial decline was quite broadly distributed, reaching 6 out of the 15 areas surveyed by the IBGE, including the main states in the Southeast region. The highlight was São Paulo, the most dense and diversified industrial park in the country, with falls that were more intense than the country's as a whole: -1.2% and -0.9% in July and August, respectively, in the adjusted series.
Thus, if GDP expands in August, as suggested by the Central Bank’s IBC-Br indicator, it will not be thanks to the industrial sector. According to the IBC-Br, which acts as a proxy for GDP, the level of economic activity increased for the third consecutive month: +0.47% in relation to July (after the elimination of seasonal effects).
The overall picture for the first eight months of 2018 suggests that economic recovery continues, but without gaining speed. This aspect is clear when we compare the growth rate of Jan-Aug/2018 in relation to 2017 as a whole. For the industry, we have exactly the same performance (+2.5% in both periods), and something very similar in the case of retail: +2.6% and +2.1%, respectively. Services, in turn, have not yet come out of the recession —down 0.5% in Jan-Aug/18— although last year's fall was more pronounced (-2.8%).
For no other reason, expectations for GDP growth this year have been progressively reduced towards the 2017 figure. According to the Central Bank's Focus survey projections, the economy is expected to grow about 1.3%, close to the 1% of 2017, which, in other words, means: more of the same.