Services pull the queue in the economy, and industry is left behind

The service sector showed signs of a stronger reaction in Brazil until June, while industrial production lagged behind the list of activities trying to recover from the losses of the pandemic.

The assessment is by economists based on research by the IBGE (Brazilian Institute of Geography and Statistics).

In June, the volume of services grew by 0.7% compared to May, the agency said on Thursday (11). The result put the sector at a level 7.5% above the pre-pandemic period (February 2020).

It is the biggest positive difference between the three major sectors covered by IBGE’s monthly surveys.

Retail sales volume, on the other hand, dropped 1.4% in June. With the performance, it was 1.6% above the pre-pandemic, according to the institute.

Industrial production shrank 0.4% in the sixth month of this year. Thus, it remained below the pre-crisis level. It is 1.5% lower than in February 2020.

“In fact, services are at the forefront. Until recently, part of the sector was restricted by the pandemic. There was a stronger return with the end of the shackles”, points out Rafael Cagnin, economist at Iedi (Instituto de Estudos para o Desenvolvimento Industrial ).

The provision of services involves a wide variety of businesses. It gathers from restaurants, bars, hotels, gyms and beauty salons, affected after the arrival of Covid-19, to transport and technology companies.

Cagnin recalls that the richest portions of the population consume more services, and these groups were able to maintain savings during the pandemic.

On the other hand, the layers with leaner incomes have spending more focused on essential goods and form the slice that is most sensitive to the effects of rising inflation.

In this scenario, the combination of prices and high interest rates makes it difficult for industry and retail segments to react more consistently, says the economist.

He also indicates that factories are still impacted by the lack of part of the inputs, although this situation has improved in the face of critical periods of the pandemic.

“There are production chains that are more exposed to supply bottlenecks. We have seen less [o problema]but still have seen”, says Cagnin.

After the release of the results of services, the bank Original said this Thursday that the sector “has compensated for part of the falls of the others”.

“I see Selic [taxa básica de juros] impacting retail and industry in June. Historically, the two sectors respond more quickly to the rate”, says economist Eduardo Vilarim, from Original.

“Services have a more delayed response to interest,” he says.

With the momentum of services, the economist projects GDP (Gross Domestic Product) with a positive change of 0.9% in the second quarter. The result will be released on September 1st by the IBGE.

During the second half of the year, measures such as the increase in Auxílio Brasil tend to generate stimuli for economic activity, but the effects of higher interest rates, which take time to appear, should cause a deceleration, Vilarim projects.

The third quarter GDP may come close to zero or with a slight negative variation, according to him. “Selic should take the economy even more intensely in 2023.”

Camila Abdelmalack, Chief Economist at Veedha Investimentos, assesses that the already known sectoral indicators indicate a 0.7% increase in GDP in the second quarter of this year.

With the stimulus announced by the government on the eve of the elections, she does not rule out a new increase in the third quarter, but of lesser intensity.

For now, the expected advance is in the range of 0.2% or 0.3%. “The drop in GDP would be for the fourth quarter”, he predicts.

According to the economist, while the performance of services has been driven by repressed demand in the pandemic, the industry still suffers from high prices and the lack of part of the inputs.

“Industrial production was further back in the queue.”

The level of the service sector, 7.5% higher than the pre-crisis, was driven by activities less dependent on interaction with customers in the pandemic, as is the case of services in the area of ​​technology and cargo transport, explained this Thursday Rodrigo Lobo, IBGE research manager.

With the advancement of vaccination and the end of restrictions, the segment as a whole also started to be stimulated by face-to-face business.

Services provided to families, however, are still 6.1% below the pre-crisis level. This category involves, for example, accommodation and food companies.