Economy

High interest rates and higher consumption of services hinder trade and industry

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Retail trade and industrial production slowed in August in Brazil, while the service sector continued to rise amid the process of reopening the economy, according to data from surveys by the IBGE (Brazilian Institute of Geography and Statistics).

For economists, there is a combination of factors that help to explain the context. Part of the retail sector feels more the effect of high interest rates. More expensive credit makes it difficult to consume goods, especially those of greater value.

This spills over into industry, as commerce is the destination of goods produced in factories. The interest rate tightening comes after inflation reduces the population’s purchasing power.

With the end of restrictions in the pandemic, there was also a change in consumption, economists point out. Resources that were previously directed only to retail purchases are now shared with expenses on face-to-face services, such as bars, restaurants, hotels and events.

“There are remnants of the end of the pandemic, which is positively affecting services. People are now consuming more services and less goods”, says Sergio Vale, chief economist at the consultancy MB Associados.

“We are also beginning to see a slowed demand for credit due to the high interest rates. The trade is suffering”, he says.

This assessment gained strength this Friday (14th), after the IBGE reported that the volume of services provided in the country grew 0.7% in August, compared to July. It was the fourth consecutive month of highs.

The advance surpassed the projections of the financial market. Analysts polled by Reuters had expected a gain of 0.2%. With the new result, the sector was 10.1% above the pre-pandemic level, recorded in February 2020.

According to the IBGE, this performance was driven by services more focused on companies and which had heated demand even in the health crisis. This is the case of cargo transport and information and communication.

With the truce of Covid-19, in-person activities also began to contribute more to the advancement of the sector. Services provided to families, for example, which include bars, restaurants and hotels, grew in August (1%) for the sixth consecutive month.

This branch, however, is still 4.8% below the pre-pandemic level. Transport is up 20%, and information and communication surpasses February 2020 by 14.1%.

In Brazil, consumption of services is more associated with families with higher purchasing power, precisely those that were better able to accumulate some savings during the period of restrictions in the health crisis.

“Services have been rising a lot. They are closely linked to the reopening of the economy”, says economist Claudia Moreno, from C6 Bank.

“On the retail side, the segments that are generally more related to credit suffer more”, he adds.

In August, retail sales were stagnant in the country, with a negative change of 0.1%, according to the IBGE. It was the third consecutive month in the red.

The sector is 1.1% above the pre-pandemic level. Expanded retail, which includes vehicles, motorcycles, parts and construction material, is down 3% from February 2020.

“People anticipated consumption [no comércio] during the pandemic. They renovated furniture, appliances”, says Moreno.

Industrial production, in turn, dropped 0.6% in August, after increasing 0.6% in July, reveals the IBGE. The sector is still 1.5% below pre-pandemic.

Economist Rafael Cagnin, from Iedi (Instituto de Estudos para o Desenvolvimento Industrial), agrees with the assessment that the migration from consumption to services impacts the production of goods in industry and sales in commerce.

He also cites the effects of high interest rates and assesses that, even in recovery, the job market still has weaknesses. These factors, he concludes, challenge the consistent resumption of factories.

“All this is important for the industry. Domestic consumption is a channel for the production of goods.”

Aid still doesn’t have much effect

According to Cagnin, the data from the IBGE surveys have not yet shown major reflections of the increase in the value of Auxílio Brasil to R$ 600.

The increase in the benefit was one of the main bets of President Jair Bolsonaro (PL) to try to improve his popularity ratings among low-income voters.

“We have many families in debt. It is possible that the first installments are directed to the payment of debts”, he analyzes.

According to the economist, the R$ 600 aid tends to be more concentrated in activities such as hypermarkets and supermarkets, which sell basic necessities.

Sergio Vale, from MB, follows the same line. “With recent inflation, these resources are being directed more towards food or overdue bills. There is not much left for other goods”, he indicates.

After the announcement of the performance of services in August, the CNC (National Confederation of Commerce of Goods, Services and Tourism) raised its projection for the growth of the sector in 2022 this Friday. .4%.

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