Leading indicators from June suggest another positive month for economic activity in Brazil

RIO DE JANEIRO, BRAZIL – After the good results of industrial production and sales in May, a large part of the leading indicators signal that the activity level in June followed the positive leads, reflecting the continuity of the reopening.

According to economists, component shortage problems in the automotive industry are an adverse factor in the scenario. Still, this restriction does not seem to have caused the activity as a whole to decline in June.

As other data anticipate favorable dynamics in the period, the perspectives for Gross Domestic Product (GDP) growth in the second quarter were maintained, even though at a much more modest pace than the 1.2% rise recorded from January to March.

The expectation is that activity will gain more traction in the third quarter, helped not only by the advance of vaccination but also by the higher starting point left by June.

The so-called “sentiment” indicators, which measure the expectations of companies and families, showed a more positive perception from economic agents in the month. The Business Confidence Index (ICE) – which aggregates data from industry, construction, trade, and services – rose 4.3 points compared to May to 98.8 points.

The Consumer Confidence Index (ICC) increased by 4.7 points, to 80.9 points. Both are measured by the Getulio Vargas Foundation (FGV), which sees the improvement in the pace of immunization as crucial for the upward trend to persist.

Also considered good antecedents, the Purchasing Managers’ Indexes (PMIs) indicated heating up in industry and services.

In the latter sector, which has not yet recovered the pre-pandemic level because it includes more activities that require social interaction, the index reached 53.9 in June – the first time in the year that it has exceeded 50. Above this dividing line, the PMI indicates expansion in business.

Some economists consider that the main data used to estimate the behavior of the IBGE’s official indicators has not yet been released for the month. For now, the confidence numbers and the PMIs are a good omen, says Lisandra, who foresees a 0.5% expansion of the GDP in the second quarter.

Calculated by Itaú Unibanco, the Daily Activity Indicator (Idat) is another number that anticipates the continuity of the recovery. On June’s average, the index stood at 102 points against 99 points in May.

It is prepared based on goods and services consumption data, which are used to project the performance of retail sales and the volume of services rendered. It is also a proxy of electricity consumption in industry, which the bank uses to estimate the variation in industrial production.

^There is a supply constraint in the automotive industry, which also caused sales to fall in the month, but this was not enough to prevent the economy from growing at the margin,” says economist Luka Barbosa.

Based on data from Anfavea (the Brazilian automakers association), Barbosa calculates that the production of vehicles fell about 5% between May and June, seasonally adjusted.

As this problem was also reflected in commerce, he estimates that the expanded retail sales shrank 1.9% in June, after rising 3.8% in May. “But this drop has nothing to do with a slowdown in demand,” highlights Barbosa.

Proof of this is that, also according to his projections, services provided to families should have grown 31% in May, data not yet published by IBGE, and 2.4% in June. “This services component is the most sensitive to social isolation and should continue to grow as the economy reopens.”

Market analysts say the pace of the main activity indicators should cool down in June, especially industrial production, which was affected by the stoppage of automakers during the period.

They estimate, on a preliminary basis, that industrial activity should have grown between 0.5% and 1% in the sixth month of the year, after the 1.4% advance seen in May.

The economy as a whole, however, still showed positive behavior in June. Thinking about the June average against the May average, there was an advance in mobility, which returned to the levels of the beginning of the year, before the second wave of the pandemic. All indicators show that the growth trend should have continued in June.

The already known data reinforce the estimate that the GDP grew 0.2% between the first and second quarters in the seasonally adjusted comparison. At the beginning of the year, the perception was that activity would recede in the period. Still, the economy’s performance continued to surprise positively, and additional acceleration is expected in the second half. Besides the expectation of a greater reopening of the economy, the supply of inputs in the industrial sector tends to improve in the coming months, which should help production, he noted.

Itaú bank has revised the estimate for growth in 2021 again, from 5.5% to 5.8%, due to the improved view of the third quarter, when the GDP should increase by 1.3%. The projection reflects the perspective of greater normalization of the economy in the period and the good performance already observed in May and June, which leaves a relevant positive statistical loading for the following quarter.

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