Projection of negative GDP in the fourth quarter of 2021 gains strength after falling services

The retraction of activity in the main sectors of the economy, services, trade and industrial production, in the month of October, reinforces the scenario of economic weakness in Brazil. In view of the generalized drop, a greater number of analysts are already projecting a negative GDP (Gross Domestic Product) in the fourth quarter of 2021.

The deterioration of the scenario became clearer this Tuesday (14), after the IBGE (Brazilian Institute of Geography and Statistics) released the result of services in October.

In comparison with September, the volume of the sector, the main one in the national economy, was down 1.2%. It was the second retraction in a row. In September, the sector had registered a drop of 0.7%.

Before releasing the data on services, the IBGE had confirmed declines of 0.6% in industrial production and 0.1% in retail sales in the same month of October. In other words, the three sectors surveyed started the fourth quarter in the red.

The loss of strength in the recovery occurs amid a context of high inflation, high interest rates and difficulties in the labor market.

This Tuesday, XP said, in a report signed by economist Rodolfo Margato, that “the service sector is disappointing for the second consecutive month”.

The segment includes activities that were greatly affected by the social isolation of the pandemic, and the expectation was that they would return with vigor when the movement of people was fully freed up.

In XP’s view, if precisely this portion of the activity does not react as expected, “there are growing risks of GDP contraction in the fourth quarter”.

The financial institution projects a decline of 0.2% in the indicator between October and December, compared to the third quarter, already discounting seasonal effects.

In 2021, the house is betting on an increase of 4.5% of the GDP, after the fall of 3.9% in 2020. In 2022, the projection is of zero variation (0%).

The indicators of volume of services, industrial production and retail sales are different from the calculation of GDP, but serve as a thermometer of economic activity.

The GDP is already coming from two negative quarters in Brazil. The indicator suffered lows of 0.4% and 0.1% in the second and third quarters of this year.

For the chief economist at the MB Associados consultancy, Sergio Vale, the October figures released by the IBGE suggest a complicated scenario until December.

For now, MB still estimates a GDP with a positive variation of 0.1% in the fourth quarter, but the trend is for a revision to the negative field soon, with the entry of new data.

“We are heading towards a negative GDP”, says Vale.

“Some results already indicate that November was not a very favorable month. Confidence indicators showed a decline, the Black Friday was not very good. There is the effect of inflation, higher interest rates and uncertainties”, he adds.

Economist João Leal, from manager Rio Bravo, considers that economic activity is in a stagnation scenario.

Rio Bravo still projects GDP with a slight positive variation in the fourth quarter, between 0.1% and 0.3%, but does not rule out a negative performance, says Leal.

“The word that best sums up the last few months in the economy is stagnation. We are unable to grow,” he says.

“You can’t rule out negative GDP in the fourth quarter. We may have new surprises and move in that direction,” he adds.

In a statement, Banco Original stated that the performance of services in October brought a downward bias to GDP projections, which should force revisions.

The bank’s current estimates for the indicator are for increases of 0.2% in the quarter and 4.8% in the year 2021.

“With all the IBGE surveys negatively surprising our forecasts, the negative bias on our GDP forecast is clear, currently at 0.2% t/t and 4.8% for the end of 2021. For 2022, the message is the same. We’ll officially revise our numbers in our next monthly scenario re-evaluation,” says the Original.

According to economists, the 1.2% decline in the volume of the services sector may be associated with factors such as the weakness of economic activity in general and stronger inflation.

Even with the setback, the sector is still 2.1% above the pre-pandemic level of February 2020. The point is that this difference was already greater. In August of this year, the services came to operate 4.1% above the pre-crisis rate.

With the lifting of restrictive measures and the reopening of economic activities in the pandemic, analysts expected a more consistent recovery in services.

The problem, according to specialists, is that the worsening of macroeconomic indicators undermines the recovery process.

“There is a general weakening situation in the economy. There is not so much income left over for the consumption of services. Inflation erodes part of the disposable income”, says Vale, from MB.

By retreating 0.6% in October, industrial production was 4.1% below the pre-pandemic figure. It was the fifth consecutive fall in the sector, which still suffers from the scarcity of inputs and the rise in production costs.

Retail sales, in turn, were 0.1% below the pre-crisis level. The 0.1% retreat in October was the third in a row for commerce, shaken by rising inflation.

The country’s official inflation, measured by the IPCA (Broad National Consumer Price Index), reached the 10.74% mark in 12 months until November. It is the largest accumulated since November 2003.

Economist Rodrigo Ashikawa, from Claritas Investimentos, considers that price pressure is one of the main reasons for the negative results of services, industry and commerce.

For now, he maintains the GDP forecast with a positive variation of 0.3% in the fourth quarter, but does not rule out downward revisions due to the risks existing in the scenario.

“We had a surprise down in the services sector in October. This shows a slightly more unfavorable scenario for economic activity in the fourth quarter,” says the analyst.