Services, industry and commerce lose steam and reinforce concern for 2022

The negative performance of the services, commerce and industry sectors in September highlights the loss of breath of the Brazilian economy, in a context of difficulties, say analysts.

Among the obstacles to a more consistent recovery in business, there is the effect of escalating inflation, higher interest rates, the still fragile labor market and the scarcity of inputs.

According to economists, the picture reinforces the signs of concern for 2022, an election year.

Expectations for the performance of economic activity have been revised downwards, and this movement tends to continue in the coming weeks — some analysts already forecast recession in 2022, that is, a drop in GDP (Gross Domestic Product).

The warning signs gained strength this Friday (12), after the IBGE (Brazilian Institute of Geography and Statistics) released the performance of the service sector, the main one in the economy.

In September, the segment retreated 0.6% compared to August, after five months of high. The result contradicted the expectations of market analysts, who had expected a 0.5% advance, according to the Bloomberg agency.

The drop in services was added to the 0.4% decline in industrial production and 1.3% in retail sales in September. The three indicators are researched by IBGE.

“There are several factors that justify the loss of traction. One of them is high inflation. Another is the dynamics of the interest rate”, says economist Lisandra Barbero, from Banco Original.

“The Central Bank has been raising the Selic and signals the continuation of this increase. Commerce, for example, is very sensitive to this”, he completes.

Despite the 0.6% drop, the service sector is the only one of the three large segments surveyed by the IBGE that remains above the pre-pandemic. In September, it operated at a level 3.7% higher than in February last year.

Industrial production, on the other hand, was 3.2% below the pre-crisis level, decreasing by 0.4% in August. It was the fourth negative result in a row.

In the view of analysts, factories are still affected by the scarcity of inputs —in the case of the automobile industry— and by the increase in operating costs.

Retail, in turn, dropped to a level 0.4% below that of February 2020. The 1.3% decline in commerce in September was the second in sequence and the largest for the ninth month of the year in the series historic. The series started in 2000.

For economists, retail is starting to feel stronger impacts from the inflationary shock, which has been causing an increase in interest rates, and from the weakness of the labor market.

“The data show a loss of breath between the sectors in recent months”, points out the chief economist of the Coface credit insurer for Latin America, Patricia Krause.

“The industry felt it before, with the restriction in the supply of inputs. Retail had a very broad drop in September, with the effect of inflation on income, and now the service sector came in below expectations”, he amended.

According to the IBGE, the fall in services in September was disseminated by four of the five activities that make up the sector. The main negative impact came from the transport sector (-1.9%).

According to Rodrigo Lobo, manager of the IBGE survey, this result resulted from the retraction in air passenger transport, pressured by the 28.19% rise in the price of airline tickets. There were also casualties in road and rail freight transport.

Within services, the activity of services provided to families (1.3%) was the only one to increase from August to September, but it is still 16.2% below the pre-pandemic, verified in February 2020.

This branch includes companies that suffered the initial hit from the pandemic and are now trying to resume with vaccination against Covid-19 and the truce in restrictions. Bars, restaurants and hotels are part of this sector.

The chief economist of the Austin Rating rating agency, Alex Agostini, also assesses that the data on services, commerce and industry illustrate a scenario of the economy losing steam.

Despite the difficulties, the GDP tends to advance around 4.9% this year, says the analyst. There is the effect of the weaker base of comparison and the reopening of activities.

However, according to Agostini, the scenario for 2022 raises concerns. Factors such as the inflationary shock and the rise in interest rates, which play against economic growth, weigh on this assessment.

“The current picture reinforces the most negative projections for next year. I think it’s still too early to talk about a recession in 2022, but, with the latest numbers, it’s easier for that to happen.”

Estimates by financial institutions for the Brazilian economy for the next year have been revised downwards in recent weeks, in the wake of worsening inflationary conditions and fiscal uncertainties.

Doubts about the direction of public accounts increased at the end of October, after the Jair Bolsonaro government (no party) decided to circumvent the spending ceiling to pay Auxílio Brasil, which replaced Bolsa Família.

“The recovery environment has become more uncertain. Given these uncertainties, it is natural to see agents postponing investment decisions or rehiring employees”, points out Lisandra Barbero, from Banco Original.

With the current scenario, the Original should reduce the projection for the GDP for the third quarter of this year. The 0.3% advance should be revised to a low close to 0.1%, according to the economist.

Patrícia Krause, from Coface, also sees more challenges for the economy in the rest of 2021 and 2022.

“There is a set of negative factors. Inflation has been rising, we still have fiscal uncertainty, exchange rate depreciation and higher interest rates.”