Valor Econômico: 06/02/2023
Weak industry in April indicates a continuity of deceleration in 2nd quarter, the economist evaluates
Andrea Damico, partner, and chief economist of Armor Capital, believes that the weak industrial performance in April indicates a continuation of the slowdown in the second quarter. She expects the sector to improve in the year’s second half, driven by the anticipated reduction in the introductory interest rate and the approval of consumption-focused tax reform.
The country’s industrial production had a performance below expectations in April, indicating that the second quarter is likely to continue the slowdown observed earlier in the year. According to Andrea Damico, partner and chief economist of Armor Capital, the expectation is that the sector will improve in the second half of the year, driven by the anticipated reduction in the introductory interest rate and the approval of consumption-focused tax reform. However, she adds that 2023 will still be a “weak” year for the industry.
The decline shown in the industrial survey was more severe than the 0.2% drop estimated by the asset manager in April compared to March. Andrea Damico, the chief economist of Armor Capital, highlighted the intensity of the decline in capital goods, which also fell by 11.5% in the monthly measurement. The GDP data showed that the first quarter was quite unfavorable for capital goods, following a decline of over 1% in the fourth quarter of the previous year.
“The first data of the PIM for the second quarter also starts with extremely weak capital goods, showing that the deceleration of domestic demand continues, both in capital goods and in durable consumer goods,” she says. Durable consumer goods, certainly influenced by the automotive sector, fell 6.9% in April compared to the previous month, after adjusting for seasonality.
“There are strong indications that Gross Fixed Capital Formation will remain weak, and today’s data shows that the more endogenous activity of GDP continues to slow down, with a strong deceleration in consumption and a drop in investments.”
Andrea highlights the possibility of a change in the scenario, with a sector rebound in the second half of the year due to the expected start of an interest rate cut cycle and the prospect of approval of the tax reform focused on consumption. The economist expects a decline in the Selic rate from August, with a cut of 0.25 percentage points. The asset manager’s estimate for the basic interest rate is 11.75% by the end of 2023.
“The industry will have a weak year, there is not much escape,” she says, due to the unfavorable data at the beginning of the year, even with the expected rebound. According to IBGE data, in the first four months of 2023, the industry declined by 1%. Furthermore, it has accumulated a decrease of 0.2% in the 12 months up to April. The sector is still 2% below the pre-pandemic level.
For Andrea, the stimulus program announced last week for the automotive sector should have a neutral effect on inflation in 2023 and a limited impact on industrial production. She points out that, as the government has announced, the program will be short-term, lasting only four months. This, she says, should result in consumer spending being brought forward in the first instance, at the beginning of the second half. However, by the end of 2023, there is likely to be a “hangover effect,” with a compensatory decline in consumption, as there will not be such a significant change in the general conditions of domestic demand.
