Letter IEDI n. 902–End of the year at a slow pace
According to recently released official data, the Brazilian economy moved sideways in November 2018, with the industry and services stagnating in relation to the previous month, after seasonal adjustment. Retail trade expanded but, to a large extent, due to the promotions that have become traditional during the month.
Industrial production changed by +0.1% and real sales in the services sector were inert (0%) in the series with adjustment, repeating the clear lack of dynamism that had already characterized both sectors in previous months. In October, the industry registered a rate of -0.1%. Services, in turn, has barely moved since September (-0.3% and 0% in Oct/18).
According to the Central Bank's IBC-Br indicator, which acts as proxy for GDP, the general level of economic activity rose +0.29% in the month. If confirmed, this performance was only possible thanks to retail trade, whose real sales went up +1.5% from Oct/18 when taking its expanded concept, which includes sales of automobiles, auto parts and construction material. In its narrow concept, the result was better: +2.9%.
It should be noted, however, that previously retail had accumulated two consecutive months of contraction. In the September-October period, it lost -1.8% (discounting seasonal effects), in both the narrow and the broader concepts. That is to say, considering the previous falls, the result of November implies a more modest dynamism than it appears at first glance.
Thus, we seem to have arrived relatively weak at the end of 2018, which means the picture is very different from the end of 2017, when economic recovery was expected to gain more and more speed.
In the industry, this pattern is quite clear. After reaching a +5.1% output growth in Q4/17, there was a decline to +1.2% in Q3/18 and finally to -0.1% in Oct-Nov/18 (in relation to the equivalent period of the previous year), suggesting that the final quarter of 2018 was disappointing.
Insome industrial segments, this behavior was even more pronounced. This was the case of semi-durable and non-durable consumer goods, which declined in Q3/18 (-0.4% vs. Q3/17) and in Oct-Nov/18 (-0.1%). Intermediate goods, which is the core of the industrial system, showed a -1.0% loss in Oct-Nov/18, after growing +4.2% in Q4/17. Capital goods and consumer durables also decelerated in relation to late 2017.
Equally unfavorable is that the weakening of the industry affected mainly the most important regional manufacturing parks, notably São Paulo (-1.1% in Q3/18 and -3.2% in Oct-Nov/18). Besides being worse than the aggregate performance, the spread of falls within the industrial branches of São Paulo is greater, reaching half of them, while for the Brazilian industry as a whole it affects only 27% of the branches. Rio de Janeiro and Minas Gerais are other states in which the industry has not been doing well either.
If the industrial trajectory points to an inertia at the end of 2018, whatever the comparison used, services show a more favorable performance than at late 2017, since it had been accumulating systematic losses until recently.
In Jan-Nov/18, real services revenue changed -0.1% compared to the same period of the previous year. This result, however, hides a relative gain in vitality in the last months of the year: + 0.7% in the Q3/18 and +1.2% in the two-month period Oct-Nov, compared with the same period of the previous year. In some areas performance eas even better, as in transport services, couriers and their auxiliaries, services provided to households and other services, which involve a diverse set of activities.
While the industry was sluggish and the best services could do was reach stability after years of recession, retail trade speeded up in 2018, especially in recent months. Compared to a year earlier, Oct-Nov/18 increased +3.2% (+6% in the broader concept), contributing to the year as a whole to move towards a stronger result (+2.6% up to Nov/18) than in 2017 (+2.1% in Jan-Dec). The same is true if we take broad retail (+5.4% and +4.0%, respectively).
At the origin of such improvement are the sales of segments such as: vehicles and auto-parts, suggesting that the recovery of the automotive industry is not just a matter of higher exports; other articles of personal and domestic use, including department stores; office, computer and communication equipment and, to a lesser extent, supermarkets, food, beverages and tobacco.