Letter IEDI n. 933–A self-repeating cycle
In the first four months of 2019 (for which official data is available), there were several signs of weakening economic dynamism. This dynamism was already very low given the depth of the crisis the country went through in 2015-2016.
Bearing in mind the recent performance of large sectors of the economy, the risk today is that a movement similar to that of the last recessive cycle may be in process. Ahead of the others is the industry, with negative rates that spread to the economy as a whole due to the innumerable links that the sector establishes with other productive activities. Close behind come trade, followed by services, only now coming into the red.
After falling in the fourth quarter of 2018 and in the first of 2019, the industry remained in negative ground in April: -3.9% compared to April/18. A large contribution to this last result came from the strong decline of the extractive branch (-24%), due to the direct and indirect effects of the Brumadinho dam disaster. However, even excluding this activity, the picture remains dire. This is shown by the -1% drop in manufacturing.
In fact, the profile of industrial losses in 2019 is quite generalized. In Jan-Apr/19, they reach 19 of the 26 branches followed by the IBGE and 11 of the 15 regional parks. That is, 73% of the industry is negative from the sectoral point of view as well as the regional point of view, generating a -2.7% aggregate contraction of the sector in the first four months of the year.
Faced with this trend, the 2019 expectation for industrial production growth has already shrunk to just 0.65%, according to the Central Bank's Focus survey. This means that, if the projection comes true, we are moving toward a level of dynamism that is almost half that of 2018, showing that industrial recovery may be a short-lived process: +2.5% in 2017, +1 % in 2018 and probably +0.65% in 2019.
In a less intense movement, but also clearly slowing down, is retail trade. Although still positive, the +0.6% high of Jan-Apr/19 (compared to the same period of the previous year) consists of 1/3 of the growth rate of the final four-month period of 2018 and almost 1/6 of the +3.4% increase presented in Jan-Apr/18. Including vehicles, auto parts and construction material, real sales growth was +2.5% in Jan-Apr/19 versus +7.4% in Jan-Apr/18.
Among the 10 segment of broad retail identified by the IBGE, 60% lost momentum in early 2019 and half were in the red in this period. Sales of durable consumer goods —such as furniture, appliances and vehicles— decelerated the most, reflecting a worsening in consumer confidence and a credit accommodation.
In addition, sales of non-durable goods —such as supermarkets', food, beverages and tobacco— were not far behind. This segment saw its results fall to the point of recording a real decrease in Jan-Apr/19. High unemployment and very moderate growth in household income are still major obstacles to the recovery of these sales.
In services, signs of deceleration appeared only in the first four months of 2019. Until then, they were able to avoid falls and had started growing again in the last four months of 2018. That is, services are the last to fade, just as occurred in the last crisis. Its result in the first four months of this year (+ 0.6%) was still positive, but ¼ lower than that of Sep-Dec/18 (+ 0.8%).
In addition to being very recent, for the time being the loss of pace is very concentrated in the segment of transport services. This, however, works only as a partial encouragement, because the performance of transportation largely reflects the level of activity of the economy as a whole. Its -2.5% fall in the first four months of 2019 is therefore an important sign of the adverse phase that the Brazilian economy is undergoing once more.
Summarizing the evidence of decline in all sectors, the IBC-Br indicator of the Central Bank, which acts as a proxy for GDP, registered for the fourth time a negative variation (in the series with seasonal adjustment): -0.47% in April 2019 compared to March. In relation to the same month last year, the drop reached -0.62% in April, but had already been significant in March: -2.37%. Expectations for 2019 GDP, released by Focus/BCB on Monday, fell below 1% for the first time, reaching 0.93%.