Letter IEDI n. 896–A month of economic paralysis
After setbacks in September, October 2018 brought some relief to the level of activity, but that did not mean growth. Although some large economic sectors managed to avoid negative rates, they performed so poorly that the overall picture of the economy was one of paralysis.
In the seasonally adjusted series, retail trade fell 0.4% in relation to September (-0.2% when taking its expanded concept, which includes motor vehicles, auto parts and construction material), services stood still, varying 0.1%, and the industry, which went a little further, increased production by only +0.5%.
In summary, the last quarter of the year began with no signs of stronger economic growth. The Central Bank's IBC-Br indicator, which acts as a proxy for GDP, registered stagnation in October, changing 0.02% from the previous month (seasonal effects eliminated).
Thus, the picture in the second half of the year up to October remains as one of loss of momentum, at least for retail and the industry, compared to the first half of 2018 and even more in relation to the second half of 2017. Services escape the rule, but it is worth emphasizing that the sector is only now leaving the crisis behind, especially from Aug/18. That is, services are lagging behind the other sectors.
In Jul–Oct/18, industrial production increased +1.2% against the same period of last year, half the rate achieved in the first six months of 2018 (+2.2%) and almost ¼ of the growth rate of the second part of 2017 (+4.1%). The main drivers of this evolution were semi-durable and non-durable consumer goods, which returned to the red (-0.2% in Jul–Oct/18) and intermediate goods, with a notable deceleration (+0.5%), expressing a loss of dynamism in the sector as a whole.
Regionally, São Paulo's performance was also negative: -1.5% in Jul–Oct/18, which causes concern for the recovery of the industry as a whole, since the state's industrial park is the largest and most diversified in the country. However, São Paulo is not alone in the red. It was also the case of Amazonas, Minas Gerais and Goiás, while other areas, such as Rio de Janeiro, had positive but weak results.
Real retail sales followed the same path as industrial production and went from a +4.2% high in the second half of 2017 to +2.9% in the first six months of 2018 and, finally, to only +1.3% in Jul–Oct/18 compared to the same period of the previous year. Taking its expanded concept, the evolution was: +7.6%, +5.8% and +4.6%, respectively.
This general path results from a very widespread process throughout the different segments of retail. This may indicate consumption is going through a more general loss of dynamism, reaching both expenditures based on the current income of the population as well as those dependent on credit.
Two retail segments suffered a strong reversal of trajectory and contracted again in Jul–Oct/18: furniture and household appliances (-3.5%), textiles, clothing and footwear (-0.3%, and -3.6% in Jan–Jun/18). Growth in sales of construction material also dropped sharply and fuel and lubricants remained in the red. To a large extent, these were the segments that pulled retail dynamism down.
As for services, they have been moving in the opposite direction and may finish 2018 with stability, putting an end to its recent period of crisis. In Jul–Oct/18, the sector recorded a revenue gain: for now, it was only +0.9%, but enough to cope with the decline of the same magnitude seen in the first half of the year.
Most of its segments also started to grow again in the year-on-year comparison of Jul–Oct/18. The only exception was professional, administrative and complementary services, usually demanded by businesses. It is still positive, however, that their decline is diminishing, reaching -1.2% in Jul–Oct/18.
As the service sector is labor-intensive, its less adverse picture is a sign of favorable overall employment in the country, even though it has still much to recover. However, the sector is also known to generate predominantly informal and low income jobs in many of its segments, which restricts the domestic market's expansion.