Letter IEDI n. 919–A discouraging picture
The picture for January 2019 extended through February in virtually all major sectors of the economy. Those that managed to grow, like the industry, grew little and could barely deal with the losses of the turn of the year. Although 2019 is only beginning, the loss of momentum has already been enough for successive cuts in the annual GDP projections. There is risk of another year of mediocre growth.
In February, services behaved as in January and recorded a 0.4% fall in relation to the previous month, with seasonal adjustment. Retail trade was stable (0%) in its narrow concept, but considering the sales of automobiles, auto parts and construction material, it had the worst performance in the month: -0.8% versus Jan/19, after adjustment. The industry was able to increase production by +0.7%, offsetting January's decrease of -0.7%.
With this, for now, 2019 practically has not added any dynamism to the economic recovery. When comparing the level of activity in Feb/19 to Dec/18, with seasonal effects eliminated, we have a picture of the current situation: industrial production stagnant (0%), real sales of expanded retail trade up +0.2% only and services revenues down 0.9%.
Summarizing these developments, the IBC-Br indicator of the Central Bank, which acts as a proxy for GDP, registered the biggest drop in Feb/19 since Aug/17, if we disregard the strong volatility of May and June of last year due to the truck drivers' strike. The level of general activity was 0.7% lower in Feb/19 than in Jan/19 and 1% below Dec/18, free from seasonality.
In other words, there is no reason to celebrate. This statement is even truer for the industry, pushed into the red in the final quarter of last year by a slowdown that began in the early months of 2018, as the IEDI has emphasized in several of its Analyzes. In the first two months of 2019 the sector is not doing much better: -0.2% compared to Jan-Feb/18.
The industrial deterioration, although more acute in some cases, is not a movement concentrated in few branches or localities. In Jan-Feb/19 compared to the same period of the previous year, 54% of the 26 branches followed by the IBGE were in the red and 60% of the regional parks were not able to grow.
The situation is more serious for intermediate goods, but capital goods were also hard hit, bringing their production to virtual stagnation in Jan-Feb/19 compared to the same period last year. Consumer goods did not repeat the fall of Q4/18, but they did slow down, in the case of durables, or remained close to stability, in the case of semi- and non-durables.
Regionally, the IBGE data show that, with few exceptions, only the industrial parks in the South registered a positive and consistent evolution from mid-2018 until the first two months of 2019. The biggest difficulties are concentrated in the Southeast, especially in São Paulo (-4% in Q4/18 and 0% in Jan-Feb/19), which is the industrial core of the country, but also in the Northeast and parts of the North and of the Center-West.
For retail trade in its narrow concept, the first two months of 2019 (+2.8% versus Jan-Feb/18) indicate a beginning of the year not very different from late 2018. In the case of expanded retail, there was some progress, from +4.4% in Q4/18 to +5.4% in Jan-Feb/19.
The concentration of growth in few branches also marks the performance of retail in the period. Although 8 of the 10 branches followed by the IBGE registered positive changes in relation to Jan-Feb/18, only 3 presented significant contributions to the general result: vehicles and auto parts; supermarkets, food, beverages and tobacco; and other articles of personal and domestic use.
On the other hand, the service sector —whose bases of comparison remain depressed, helping to improve its performance compared to the situation of a year ago— recorded a +2.9% increase in real revenues in the first two months of 2019. The increase in services happened mainly in the segments of information and communication services (+4.8% vs. Jan-Feb/18), services provided to households (+4.3%) and other services (+5.4%), which bring together a diverse set of activities.
All these have components belonging to the consumption baskets of the population and, therefore, it is possible that it is precisely household consumption that is behind the recovery of the service sector as a whole. In the segments most associated with companies, revenue expansions, when they exist, have been much more modest.