‘Owner’ of 1/5 of GDP, industry shrinks 0.2% and faces difficulties in the recovery; see the 5 main hurdles | Economy

Lack of inputs, expensive energy, paralyzed production, families without purchasing power: Brazilian industry may be knocking on the doors of the emergency room.

Being the sector least affected by the restrictions imposed by the pandemic did not prevent it from “shrinking” 0.2% in the second quarter of this year, according to data released this Wednesday (1) by the Brazilian Institute of Geography and Statistics (IBGE).

And the scenario for the coming months promises to remain challenging: according to a survey by the Getulio Vargas Foundation (FGV), confidence in the sector – which accounts for about 20% of Brazilian GDP – fell back in August, although it still remains above 100 points level that suggests optimism.

“The industry is losing strength due to supply and demand factors,” says economist and former finance minister Mailson da Nóbrega.

“There is a loss of dynamism on the side of families due to inflation, even with a small recovery in employment due to informality. On the supply side, the industry is suffering from the effects of the global supply chain. The price increase also affects a lot the industry, especially energy,” he explains.

At the same time, the economy as a whole suffers from the effects of the country’s prolonged political crisis, in addition to suspicions about the government’s ability to advance the reform agenda and promote growth – factors that contribute to increasing mistrust and delaying investments in the industry .

“There is no engine that drives the Brazilian GDP. Unfortunately, we do not have any economic growth policy”, regrets Claudio Considera, coordinator of the Ibre/FGV’s GDP Monitor, a survey that seeks to anticipate the behavior of the economy.

Industry performance on GDP — Photo: G1 Economy

See below the five main obstacles to the growth of the industry in the country

1. Loss of household purchasing power

In the 12 months until June (when the second half ended), inflation accumulated high of 8.35%, the highest since 2016 until then. The following month, the situation worsened – and the rise in prices shows no signs of relief. The direct consequence of this inflation is the loss of household purchasing power.

The rise in the dollar also contributes: as a considerable portion of the industry’s inputs is imported, the appreciation of the US currency against the real is reflected in further price increases here.

“The industry is doing poorly because household consumption is doing poorly, household income is falling with inflation,” explained Considera. “The part that was guaranteed by the Emergency Aid ended up being used in non-durable products, food, basically, and, later, it had some durable ones, but it has already returned to normality.”

2. Problems in the global supply chain

Among the many difficulties presented by the pandemic, there was a breakdown of the global supply chain, harming the supply of inputs between countries.

  • More than 70% of industries face difficulties in obtaining inputs, says CNI survey

Lack of semiconductors hinders the resumption of Brazilian industry sectors

Lack of semiconductors hinders the resumption of Brazilian industry sectors

In Brazil, the problem is felt more by assemblers, who face problems to obtain semiconductors – one of the reasons given by several assemblers that paralyzed their activities during the first half of the year.

“The lack of semiconductors prevents the normalization of the automobile chain”, explains Mailson da Nóbrega. “The industry is losing a lot of strength and this problem should not be solved this one because the paralysis [em suprimentos] it was global”.

Brazil is currently experiencing the biggest water crisis in nearly 100 years – and which (although the government denies it) threatens to result in rationing and blackouts.

Brazil is experiencing the worst water crisis in the last 91 years

Brazil is experiencing the worst water crisis in the last 91 years

To avoid this scenario, the National Electric Energy Agency (Aneel) promoted successive increases in so-called tariff flags, an extra fee charged on electricity bills, whose objective would be to encourage consumers to save on energy use, in addition to offsetting the higher cost of generation.

“The water crisis increases the price of energy and of the entire production chain, either because there are higher costs for providing services and for storing and transforming products. There is a very macro impact”, explains Juliana Inhasz, coordinator of economics at Insper.

  • Water crisis worries 90% of businessmen, shows CNI survey

She also points out that the water crisis affects the performance of the GDP beyond the industry: “you can’t also forget that Brazil, being strong in agro, suffers doubly from this crisis because the agricultural production drops. We have a reduction in harvests, quality of the product falls and the pasture falls”.

The interest rate started the year with historic lows, at 2%. The acceleration of inflation, however, lit the warning signal, and the Central Bank began a sequence of increases in the Selic rate. In the last one, in early August, the rate was 5.25%, the highest in almost two years.

This increase impacts the industry on both sides: raising the cost of production, and further reducing the population’s purchasing power. With inflation unabated and new prospects for the Selic to rise, the situation does not tend to improve anytime soon.

“Our projection for Selic is 7.5% per year at the end of the year and that it stays that way throughout 2022. And the cost of credit should be a limiting factor for the entire industry because it should affect household consumption”, points out Nóbrega .

5. Political crisis and reforms stalled

Faced with so many challenges, the industry – and the entire country – still has to deal with the prolonged political crisis, which hinders the reforms expected by the sector, which have been presented sliced ​​and disfigured throughout the proceedings.

“There are the problems (the lack of input and the increase in energy costs), but the biggest problem is that there is no stimulus for the growth of the Brazilian GDP”, saysconsiders, from FGV.

“There is a reform of this, reform of that, always in the hope that by making these reforms the businessmen will invest, the reforms will stimulate economic growth, but this has not happened,” he laments.

The political crisis also generates instability that increases distrust of the country’s future and harms investments, generating impacts along the chain.

“The country’s instability impacts the exchange rate, the exchange rate affects inflation and inflation affects the income of Brazilians”, points out Maílson da Nóbrega.

Faced with so many difficulties, the prospects for the industry and for the Brazilian economy in the coming months are not exactly encouraging.

“For next year, the perspectives of growing 2%. And we will be subject to this mediocre growth that has been following the country for some time now”, points out Considers. “We are in a very difficult situation and we are going to stay in that situation for the next year, for the next year and a half.”

“The second quarter will set the tone for what should happen in the rest of the year: high inflation, more difficult flow of commodities and an uncertain scenario going forward,” says Juliana Inhasz.

SECOND QUARTER 2021 GDP