Industrial output down 0.6 percent in July; in 12 months, the sector is back to square one

Parked cars in a harbor yard in Paranaguá, Southern Brazil. Photo: Rodrigo Luft/ Shurterstock

Brazil’s industrial output fell 0.6 percent in July from the previous month and 1.1 percent from the same period last year, according to national statistics agency IBGE. It is the first decline in two months, and it came sharper than analysts had predicted (0.3 percent fall month-over-month and a yearly drop of 0.5 percent, according to a Reuters poll).

The cumulative result for the year is a decline of 0.4 percent compared to 2022. In 12 months, it has literally moved sideways, with zero variation. The July result is also 2.3 percent below the pre-pandemic level (February 2020).

The external and internal pressures acting against the industrial sector lead to projections of a stagnant or even weaker sector in the coming months. These pressures are mainly due to the global economic slowdown, particularly in China, which causes demand to drop, and from the country’s high interest rates, despite the new cycle of cuts initiated by the Central Bank in early August. Capital goods and durable consumer goods groups are susceptible to interest rate variations.

The decline in output was widespread, with three (capital goods, durable consumer goods, and intermediate goods) of the four major economic categories monitored and 15 of the 25 surveyed activities.

The most significant decreases were in motor vehicles (-6.5%), extractive industries (-1.4%), computer equipment, electronic and optical products (-12.1%), and machines and equipment (-5%).

Regarding the automotive industry, the drop in July added to the decline of 3.4 percent in June, which, for IBGE research coordinator André Macedo, shows that the temporary tax exemption program for consumers to buy lower-value cars was not enough to change the scenario of the segment. “What the survey captured from the June and July data is that, initially, this stimulus only affected sales because the sector’s inventory levels were high,” explains Mr. Macedo.

If the segment had to halt production several times last year due to a shortage of parts and electronic components, especially semiconductors — a problem caused by the logistical disruptions of the pandemic — what is now holding back activity and increasing inventories is low demand.

For the economist and independent consultant André Perfeito, the government’s program did not have the expected effect because it was not accompanied by a drop in interest rates. “This shows, once again, that specific initiatives only bring volatility to the numbers of the sectors contemplated without thereby [really] raising their [output] level.”

Fabiane Ziolla Menezes

Former editor-in-chief of LABS (Latin America Business Stories), Fabiane has more than 15 years of experience reporting on business, finance, innovation, and cities in Brazil. The latter recently took her back to the classroom and made her a Master in Urban Management from PUCPR. At TBR, she keeps an eye on economic policy, game-changing businesses, and people driving innovation in Latin America.