The Industry Begins the Year with a 6.3% Drop

The Industry Begins the Year with a 6.3% Drop

According to the latest data from the Latin American Economic Research Foundation (FIEL), the past year has seen a significant decline in the industrial sector. With an average fall of 1.3% last year, January saw a further 6.3% drop in the industry when compared year on year.

These figures, provided by the foundation’s economists, highlight a year-on-year contraction in industrial production in January. This contraction was widespread, affecting multiple sectors such as food and beverages, textiles, chemicals and plastics, non-metallic minerals, the metalworking industry, and the automotive industry.

Despite the overall decline, some sectors did experience growth. Paper and pulp production rose by 1.9%, and oil refining saw an increase of 1.1%, both compared to January last year. Cigarette shipments also remained steady, matching the levels seen in January 2023.

Nonetheless, most branches of industrial activity saw a decrease. Textile input production declined by 2.2%, followed by chemical and plastic inputs at 3.1%, and food and beverages at 4.9%. These figures are all based on year-on-year comparisons.

According to FIEL, some sectors experienced even steeper declines. The basic metal industries saw a drop of 8.7%, non-metallic minerals contracted by 13%, automotive production fell by 16.4%, and metalworking reduced by 18.7%, all compared to January 2023.

In seasonally adjusted terms, January’s industrial production fell 0.9% compared to December, marking two consecutive months of decline. This has led to a downturn in activity, with the seasonally adjusted activity level for January being 11.2% lower than that recorded in May 2022, marking the beginning of the industry’s current recession.

Indicators suggesting a change in the economic phase show it is both deepening and prolonging. FIEL analysts suggest that the industry is entering a period of adjustment to the new economic landscape at the start of 2024. This landscape is characterized by significant changes in relative goods and services prices, a severe decline in public purchasing power, and greater encouragement for exports.

Economists have noted that in the short term, settling commercial debts with foreign suppliers and meeting deadlines for accessing the exchange market will impact the pace of imports of inputs, parts, and pieces, and therefore the normalization of stocks in branches that heavily rely on imported inputs.

FIEL suggests that sectors tied to consumption, such as textiles, footwear, and durable goods like white, gray, brown line and small appliances, will be the hardest hit. This is due to the decrease in real income and the adjustment of family expenses. However, changes in the relative prices in the economy may provide incentives for increased exports, potentially helping sectors with international reach to better cope with the contraction of the domestic market.

Looking at the medium-term perspectives, FIEL points out that the economic scenario in Brazil could provide a boost to local industrial activity.