Letter IEDI n. 889–Converging to low growth
September 2018 can not be considered a month of recovery for economic activity, as no sector was spared losses in relation to August. The industry and retail trade recorded non-negligible and recurring declines. Services, in which the signs of dynamism have been even rarer, fell, but at least less intensely than in previous months.
The variation in services' real revenue was -0.3% (discounting seasonal effects), after a period of strong volatility in which positive and negative results alternated. In "narrow retail" (i.e., excluding motor vehicles and construction), the decline was -1.3%, offsetting a large part of August's 2% improvement. In its expanded concept, retail’s performance was worse: -1.5% in relation to the previous month.
Industrial production recorded the most unfavorable trajectory, accumulating three consecutive months of contraction in the series with adjustment, something that had not happened since the end of 2015, a year of acute crisis for the sector. In September, the drop reached -1.8%, that is, the highest among the large sectors of the economy. Besides being intense, it also reached practically all macro-sectors and the main regional industrial parks, especially São Paulo.
Thus, the IBC-Br indicator of the Central Bank (a proxy for GDP), which had been showing a rising general level of economic dynamism in recent months, also failed to avoid the negative range in September: at -0.1% (corrected for seasonal effects), it points to a picture of virtual stagnation of the economy this month.
For many of the major economic sectors, this unfavorable evolution, month after month, is been translated into interannual trajectories that converge to a rather moderate pace of growth. As the industry and retail slow down toward stability, services seem to have bottomed out and now reach the first positive rates, even if still very close to zero.
For instance, after a 5% increase in Q4/17, the dynamism of industrial production declined to only 1.2% in Q3/18. Something similar occurred in real retail sales, moving from 4.2% to 1% in the same period. In its expanded concept, the loss of pace was more moderate, from 7.7% to 4%, due to sales of vehicles and auto parts, which continue to advance at double-digit speed due to the low basis of comparison. Meanwhile, services' revenue saw the interruption of a 14-quarter sequence of contraction and rose 0.7% in Jul-Sep/18.
In the industry, all macro-sectors contributed to the weaker impetus during 2018; worth of mention are semi-durable and non-durable consumer goods, which returned to negative territory in Q3/18 (-0.2% compared to the same period of the previous year). The only exception was the production of intermediate goods, but in this case it has grown almost nothing for two quarters (+0.6% and +0.7% in the 2nd and 3rd quarter/18).
Regionally, São Paulo's industry showed an output decrease in July-September (-1%), as did Minas Gerais (-1.1%), Amazonas (-5.5%), Bahia (-0.2%) and Goiás (-4%). The industry of Rio de Janeiro also lost pace, albeit in a less accentuated way, avoiding a negative rate.
In retail trade, some segments are in a more serious situation than the sector's aggregate, such as fuels and lubricants (-5.2% in Q3/18) —declining since 2015— and textiles, clothing and footwear (-1.7%), whose real sales have been in the red since the beginning of the year, after finishing 2017 with a reasonable level of dynamism (+6.9% in Q4/17).
The same pattern is followed by the segment of furniture and household appliances, which already sees two quarters of deepening falls (-0.6% and -4.1% in Q2 and Q3/18), implying a significant downturn in relation to Q4/17, when it was one of the fastest growing branches (+11.3%). Other retail segments did not slip into negative territory, but they also recorded a sharp slowdown, such as construction materials, pharmaceuticals, and supermarkets, food, beverages and tobacco.
Contrary to what we have seen earlier in the year, in Q3/18 services showed some signs of optimism. The 0.7% increase is not only the first after a long period, but is also accompanied by revenue growth in most segments of the sector.
This is the case of transport, postal services and auxiliary services —a segment that is also moving towards the second year of revenue expansion (+2.3% in 2017 and +1.3% in 2018 through September)— and information and communication services (+0.4% in Q3/18). Another branch with good results was services rendered to households, with a 1.7% high after three quarters of contraction. The main obstacle to a more substantial improvement has been professional, administrative and complementary services, generally demanded by companies, which remain in decline (-1.5% in Q3/18).