Economic activity slows at the beginning of the second quarter

Economic activity slows at the beginning of the second quarter

Services, commerce and industrial production slow down in April, indicates IBGE

In a horizon of high interest rates and persistent inflation, economic activity opened the second quarter with signs of deceleration in Brazil.

The signs of loss of rhythm gained a new element this Tuesday (14), when the IBGE (Brazilian Institute of Geography and Statistics) released the performance of the service sector for April.

In comparison with March, the volume of the main segment of the national economy increased by 0.2%. The change came below the high of 1.4% recorded in the third month of the year.

The new result also fell short of financial market estimates. Analysts consulted by the Reuters agency projected an increase of 0.4% in April.

The service sector involves a wide variety of businesses. Bars, restaurants, hotels, transportation companies, technology companies and financial institutions are examples of this list.

“The economy enters the second quarter with higher inflation with the Ukrainian War and accelerating interest rates. It is a more difficult situation for consumption and investments”, points out Sergio Vale, chief economist at MB Associados consultancy.

Before disclosing the performance of services, the IBGE had already informed the results of retail sales and industrial production.

Retail grew 0.9% in April. It was the fourth consecutive rise, but the least intense of that period. The advances were 2.4% in January, 1.4% in February and 1.4% in March.

Industrial production, in turn, rose 0.1% in April. The change was the third positive in a row, but came after more robust increases of 0.7% in February and 0.6% in March.

In the view of Camila Abdelmalack, chief economist at Veedha Investimentos, economic activity is beginning to be more impacted by the tightening of interest rates, which makes the consumption of goods and services more expensive.

In addition, the industry still faces problems such as the scarcity of some inputs, according to the analyst.

Thus, the GDP (Gross Domestic Product), also calculated by the IBGE, should register a high of 0.5% in the second quarter, projects Abdelmalack. If confirmed, the result will be less than the 1% growth in the initial three months of 2022.

“We are beginning to suffer the consequences of a more restrictive framework”, says the economist.

According to her, what still tends to guarantee stimulus to economic activity in the second quarter is the resumption of face-to-face services, which suffered a blow in the pandemic, in addition to measures announced by the federal government.

Among them are the release of withdrawals from the FGTS (Fundo de Garantia do Tempo de Serviço) and the anticipation of the 13th of INSS (National Social Security Institute) retirees.

“The sector indicators, even though they continue to rise, are showing some loss of breath”, says Alex Agostini, chief economist at the Austin Rating risk rating agency.

Agostini assesses that GDP should slow down in the second quarter and that the scenario tends to get more complicated in the second half of the year.

The projection is associated with the effects of high interest rates, which tend to appear with greater intensity over the months, persistent inflation and political uncertainties in the electoral race.

“The outlook is for a slowdown in GDP between now and the end of the year, with the risk of having some quarter of retraction”, analyzes Agostini.

Services and commerce are above pre-crisis

According to data released by the IBGE this Tuesday, the service sector as a whole is 7.2% above the pre-pandemic level of February 2020.

The increase of 0.2% in April, compared to March, was concentrated in only two of the five activities surveyed: information and communication (0.7%) and services provided to families (1.9%).

Information and communication services have been stimulated in the pandemic by the search for companies to digitize, according to the IBGE.

The services provided to families, which bring together businesses such as bars, restaurants and hotels, have benefited in recent months by the process of reopening the economy. However, they are still 9.6% below the pre-coronavirus.

Retail trade registers a level 4% above February 2020, before Covid-19, says the IBGE. Industrial production, on the other hand, is 1.5% below pre-pandemic.

“In April, the level of economic activity in the country evolved little. It was constrained by the virtual stagnation of industry and the service sector. Retail trade even managed to do a little better than the other sectors, but even so its sales did not have a robust result”, evaluated the Iedi (Instituto de Estudos para o Desenvolvimento Industrial).

“After the initial effects of the resumption of face-to-face activities, it may be that the reduction in the population’s purchasing power and unemployment is still high”, he added.

Source: Leaf

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