Despite the start of the easing cycle, high interest rates continue to influence consumption and investment decisions, helping to maintain the trend towards lower production dynamism
RIVER – A Brazilian industry started the fourth quarter stagnant. Production grew only 0.1% in October compared to September, after having already remained stable (0.0%) in the previous month. The data comes from Monthly Industrial Survey – Physical Productionpublished this Friday, 1, by Brazilian Institute of Geography and Statistics (IBGE).
“The results of industrial production up to October were characterized by insignificant variations. In general, moderate ups and downs were recorded, which ended up canceling out the results accumulated over the year”, summarizes the Federation of Industries of the State of São Paulo (Fiesp).
Despite the start of the monetary easing cycle, high interest rates continue to influence consumption and investment decisions, helping to maintain the trend of lower dynamism in Brazilian industrial production throughout 2023, explained André Macedo, director of the Industrial coordination of IBGE.
“This is an important factor to consider in understanding this lower intensity characteristic of the industrial sector during 2023,” Macedo said.
Despite the start of cuts in the base interest rate, the Selic, in August, monetary policy remains restrictive, leading to negative consequences for the industrial sector, the researcher assessed.
“The increase in the interest rate affects the behavior of families in consumption decisions, it affects production,” Macedo said. “In the case of companies, this affects trust and investment decisions by the business community.”
It recognises, however, that the positive effect on economic activity of the monetary easing already initiated by the Central Bank’s Monetary Policy Committee manifests itself with a certain delay.
“Indeed, there is a lag with respect to decision-making and the effects not only on industrial production, but on the economy. It is possible that this will happen, but we cannot say for sure,” Macedo reflected. “We know there is a lag. The downward trajectory of the interest rate obviously has an impact on the confidence of not only consumers, but also the business community. You have some news that brings some encouragement, but that has not happened. however, it has had a direct effect on the trajectory of the industrial sector during 2023.”
The 1.6% expansion recorded in food production mainly contributed to keeping the trend of industrial production still in positive territory in October compared to September. There was progress in 14 of the 25 areas examined.
In addition to the decisive contribution of the food sector, the other main positive influences on the entire sector came from pharmaceutical products (3.7%), machinery and equipment (2.4%), metal products (2.3%), vehicles (0.9%), beverages (1.6%), machinery, household appliances and electrical materials (2.3%) and rubber and plastic products (1.3%).
In the opposite direction, among the 11 activities with a decline in production, petroleum derivatives and biofuels (-1.4%) and extractive industries (-1.1%) stand out. Significant losses were also recorded in the sectors of computer equipment, electronic and optical products (-2.6%) and the printing and reproduction of recordings (-5.8%).
“The heterogeneity of the sector remains relevant, with some sectors growing and others experiencing significant declines. This is evident if we look at the performance of the extractive industries, which grew by 3.7% in 12 months, and the manufacturing industries, which have fell by 0.7% in 12 months. 7% in the same period,” João Savignon, head of macroeconomic research at asset manager Kínitro Capital, noted in a comment. “Indeed, the sector remains stagnant in 2023, literally operating sideways since mid-2021.”
The Brazilian industry entered October trading at a yield 1.6% lower than its February 2020 level, pre-covid-19 pandemic. Only seven of the 25 activities investigated operate at a level higher than those before the health crisis: other means of transport (11.9%), petroleum derivatives (10.5%), tobacco products (9.0%) , extractives (5.1%), machinery and equipment (4.1%), printing and reproduction of records (1.8%) and food products (1.6%).
At the other extreme, the segments furthest from the pre-pandemic level were furniture (-29.6%), clothing and accessories (-29.0%), miscellaneous products (-21.7%), electrical machinery and materials (-20.8%), IT equipment (-19.4%), leather goods and footwear (-19.1%) and motor vehicles (-19.0%).
“There is still a lot of room for this industrial sector to recover from the significant losses of the recent past,” said André Macedo, of IBGE.
In October, Brazilian industrial production as a whole was 18.1% lower than the peak reached in May 2011. In the capital goods category, production is 37.0% lower than the peak recorded in April 2013, while consumer durables are trading 42.2% below their March 2011 peak. Intermediate goods are 15.3% below their May 2011 peak, while semi-durable and non-durable goods are trading at a lower level 13.5% compared to the June 2013 peak.
Macedo also confirmed that the seasonal increase in demand for industrial consumer goods in the last part of the year did not contribute to increasing production.
“The consumer goods sector, which is well linked to these year-end orders, marks two consecutive months of decline (in production),” he pointed out.
The researcher recalled that the severe drought in the state of Amazonas has damaged the production of consumer goods industries in the Manaus free trade zone region. The transportation of raw materials has been affected, particularly the production of durable consumer goods, such as electronics.
“But the loss in this economic category (durable) It doesn’t just derive from a specific factor, there is a situation behind it”, explained Macedo. “The credit issue, the default rate, the greater indebtedness are important factors to understand the loss that durable goods have compared to the past . levels.”
Source: Terra
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