Letter IEDI n. 924–New downward phase
The data available indicate the possibility of the industrial recovery that began in 2017 being, in fact, only a mini-cycle of growth after a long and acute period of crisis. In the best of perspectives, we will have a W-shaped curve, making this a rather feeble growth process.
Dynamizing factors that were in operation in 2017 —such as the agricultural super-crop, the release of FGTS resources, the sharp deceleration in inflation and the fall in the Selic rate, as well as the greater dynamism in international trade— started to lose strength last year; at the same time, we did not observe other possible growth engines gaining momentum at the required pace.
The declining interest rates on loans and the consequent normalization of credit in the country were important candidates for bringing more dynamism to the industrial system in 2018. In reality, they left much to be desired and did not boost the recovery of consumption and investment.
In addition, last year industrial performance was harmed by the truck drivers' strike, the uncertainty of the political-electoral process and the crisis in Argentina, amid the slowdown in world trade, and unemployment itself, which is still at record levels. Thus, industrial output growth went from +5% in Q4/17 to -1.2% in Q4/18 in relation to the same period the year before.
Many of these unfavorable aspects remain in 2019. As a consequence, the industry not only continued in the red, but actually saw its decline deepen in the first quarter of the year: -2.2% compared to Q1/18. In relation to the end of 2018, performance was also negative: -0.7% compared to Oct-Dec/18, with seasonal adjustment. That is, losses are observed no matter at what angle we look at the sector.
The twelve-month comparison to the equivalent previous period, which acts as a measure of trend, leaves no doubt about the path that the industry has followed in recent months. In March/19 it returned to the same situation of Aug/17, registering -0.1% in both cases. The difference is that, at that moment, the industry was gaining speed and, now, it is losing more and more dynamism. This is a clear sign of deterioration.
In addition, not only did the industry stop growing, but the best mark reached in this mini-cycle was +3.9% in the twelve months ended in April/18. This is a pace that is far from being enough to offset the falls experienced during the crisis, which reached levels close to -10% in 2016.
Considering these figures, expectations for industrial growth have been systematically reduced. According to the Central Bank's Focus survey, at the end of last year industrial physical production was expected to increase +3.2% in 2019; now, at the beginning of May, it is believed this rate will not be greater than +1.8%.
Although more serious for some than for others, this new phase is being felt by the vast majority of industrial sectors. Of the 26 branches followed by the IBGE, no less than 21 (81%) were in the red in Q1/19. Worse still, half of them (i.e. 13 branches) followed the general industry and fell in Q4/18, with almost ¼ already accumulating more than two consecutive quarters of contraction. Thus, it is possible that we are in the middle of another recessive stage.
Considering the large industrial macro-sectors, all of them plunged again into the red, even capital goods (-4.3% versus Q1/18), which late last year still managed to remain in the black. In turn, capital goods for the industry itself, whose production accompanies the evolution of the sector's investments, is worse and worse, registering a fall in both Q4/18 (-5.5%) and Q1/19 (-4.9%).
Durable consumer goods (-3.5%) declined as a result of the automotive sector (whose exports are being greatly affected by the Argentine crisis), but also due to furniture and home appliances, which better reflect the obstacles to the revival of domestic demand.
Intermediate goods had already experienced a period of very low growth for most of 2018, moving into negative territory in Q4/18 (-1.6%) and staying there in Q1/19 (-2%), mainly due to segments related to food, textiles, pulp and metallurgy.
Semi-durable and non-durable consumer goods did not fall as much as other industrial macro-sectors, but they have been going through a long process of stagnation that seems to be slipping more clearly into a recessive stage. From Q3/18 to Q1/19, increasing declines were registered: -0.2%, -0.8% and -1.4%, respectively.