[SAMPLE] Output recovers to pre-pandemic level
Economic activity recovered in August, reaching pre-pandemic levels. Official data reported an increase of 1.1% MoM in July (seasonally adjusted), with interannual comparisons showing the economy up 12.8% YoY. In consequence, output is 0.28% above its pre-pandemic level (January 2020) and remains just 1.9% below early 2019 levels. Data for September is scarce, although several major sectors, such as Construction (per the Construya Index and Cement sales) or Manufacturing (according to electricity demand data) have shown signs of further improvement.
Recovery is clearly moving on two tracks. As has been previously noted (see here), the recovery of economic activity has occurred and will continue occurring at two different speeds. Goods-producing activities (Manufacturing, Agriculture, Mining, and Electricity, Gas & Water) are not only above pre-pandemic levels (+5.5% vs January 2020) but are also operating above 2019 capacity as well (+1.25% vs January 2019). Meanwhile, the Services sector (Construction, Retail, Hotels & Restaurants, etc.) has not recovered from the pandemic recession yet (- 1.7% vs 2020), or from the previous recession for that matter (-3.3% vs 2019).
The same trends can be seen in employment. The Goods sector was 1.3% above January 2020 levels of employment in July, whereas the Services sector remained 2.6% below the same level. Although total private registered employment remains below 2020 levels, not to mention 2019 levels, it will continue recovering. Public employment has increased compared to prior levels, and self-employment has more than recovered, resulting in total registered employment being slightly above pre-pandemic levels.
Goods sector performance to be determined by trade requirements. So far, import growth has outpaced the economic recovery, with total imports up 22% compared to 2019. Import growth has, so far, been determined by production inputs: Intermediate goods, Capital goods, and Parts & Accessories, with Fuels taking a secondary role. This could be caused by various reasons: a more appreciated real exchange rate, the wide FX premium and overbuying to compensate for past (and future) restrictions. Regardless, recent restrictions and potential shortfalls on the export side (decreasing global commodity prices and slowing Brazilian demand) could prevent real output to increase much further.
Services performance to be determined by purchasing power and Delta variant. The recovery of the service sector will be precarious but contingent on avoiding a third wave of the Coronavirus (like the ones observed in developed nations) and on reducing inflation's impact on purchasing power. Regarding the pandemic, cases have reached their lowest levels in months, and the once sluggish vaccination drive seems to have been a success. However, a third wave (particularly in the winter) cannot be discounted, and containment measures that could accompany it would disproportionately impact contact-intensive services once again. As for purchasing power, inflation-adjusted wages are 11.1% below 2019 levels, and 8.2% below for registered workers, despite recent acceleration of nominal (and real) wage growth. Short-term inflation dynamics will be a key determinant for the recovery of Services, and the economy as a whole.
