Street consumption stimulates services, and only fuel is saved in retail

With the advance of activities aimed at companies and the return of on-site consumption by families, the service sector remained a protagonist in the Brazilian economy in July.

Retail, on the other hand, floundered at the beginning of the second half of the year, in a context marked by still high inflation and high interest rates, according to data from the IBGE (Brazilian Institute of Geography and Statistics).

In July, the volume of services grew 1.1% compared to June, the third consecutive increase. As a result, it expanded the distance from the pre-pandemic. It is now 8.9% above its February 2020 level, before Covid-19 forced restrictions.

On the other hand, the volume of retail sales fell by 0.8% in July, the third consecutive month of negative rates. Thus, it reduced the positive distance in relation to the pre-pandemic. It was just 0.5% higher than February 2020.

Within restricted retail, only 1 of the 8 activities surveyed had a positive performance in July. This is the segment of fuels and lubricants, whose sales rose 12.2% in relation to June.

It is as if the consumer fills up the car and reduces the shopping cart in other areas of commerce. The biggest drop among the retail segments, of 17.1%, was registered by fabrics, apparel and footwear.

For analysts, fuels and lubricants were saved due to recent tax relief. Pressured by inflation on the eve of the elections, President Jair Bolsonaro (PL) sanctioned in June the law that defined the ceiling for charging ICMS (state tax) on products such as gasoline. The measure contributed to the drop in prices at gas stations.

“Retail has a more worrying scenario. Some people are looking to consume more services and less goods now”, says economist Luca Mercadante, from Rio Bravo Investimentos.

“The service sector had lost a lot at the beginning of the pandemic”, adds the economist, in reference to the restrictions forced by Covid-19.

The restrictive measures shook the services because the sector brings together companies dependent on direct contact with customers. This is the case of bars, hotels, restaurants and events.

According to the IBGE, services provided to families, which involve accommodation and food, increased by 0.6% in July, the traditional holiday month.

It was the fifth consecutive month of growth. Despite the positive sequence, they are still 5.7% below the pre-pandemic.

According to the IBGE, what pushed the service sector up during the health crisis were activities that usually have other companies as clients, such as information technology and cargo transport.

In July, transport in general grew by 2.3%, while information and communication services rose by 1.1%, according to the IBGE. The segments are 20.2% and 13.3% above pre-coronavirus, respectively.

“We are in a process of normalizing the consumption basket. Services, even due to repressed demand, continue to stand out”, says economist Silvia Matos, coordinator of the Macro Bulletin of FGV Ibre (Brazilian Institute of Economics of Fundação Getulio Vargas). She considers that, after the effects of reopening, the sector tends to lose momentum.

Industry remains below pre-crisis

The IBGE’s monthly surveys also include industrial production. In July, factory production even had a positive change of 0.6%, after a decline of 0.3% in the previous month. Even with the relief, the indicator is still 0.8% below the pre-pandemic.

According to analysts, the industry feels the restriction in the supply of part of the inputs, despite the recent improvement in the picture. The high production cost is another factor identified as a challenge.

According to economist Eduardo Vilarim, from Banco Original, industry, along with commerce, is also impacted earlier by the increase in interest rates. “The activities are very heterogeneous”, he points out.

“Services are doing very well, in part because they were dammed up. People who used to consume more goods now consume services.”

In the second quarter of this year, the GDP (Gross Domestic Product) grew 1.2%, according to the IBGE. The result was pulled by services. Economists see room for further advances in the sector by the end of 2022.

As a result, it is likely that GDP will once again have a positive variation in the third quarter, but below 1%, and will be closer to zero or even negative in the last three months of the year. The possible loss of breath is associated with the lagged effects of rising interest rates.

In 2022, the median of financial market projections indicates growth of 2.39% for GDP, according to the Focus bulletin, released by the BC (Central Bank). Homes like the Original and Rio Bravo are projecting a rise of 2.7%.