GDP Monitor points to 0.7% growth in economic activity in May

In May, the economy began to show signs that the worst moment of the economic crisis caused by the COVID-19 pandemic occurred in April, when economic activity retreated 9.3%, compared to March. The components of GDP that were hardest hit by the present crisis have shown a similar downward and upward trend
Economics
16 July 2020
GDP Monitor points to 0.7% growth in economic activity in May

FGV’s GDP Monitor points to 0.7% growth in economic activity in May, compared to April, in seasonally adjusted terms. In the three months to May, activity contracted 10.5%, compared to the three months to February. Year-over-year, the economy shrank 13.3% in May and 9.4% in the three months to May.

“After two strong contractions in a row, the economy began to grow again in May. Likewise, the main components of GDP also show that the slump caused by social distancing was focused on March and April, given that in May, the three main types of economic activities (agriculture, industry and services) all grew, as well as the main components of demand (household consumption and gross fixed capital formation). Despite the growth of 0.7% compared to April, it is too early to say that this result indicates an economic recovery, bearing in mind that there is still a lot to recover from the huge accumulated loss of 13.9% recorded in March and April of this year. It is worth mentioning that the economic situation is still very fragile and despite the growth observed in May, the economy is 13.2% smaller than in February,” said Claudio Considera, the coordinator of FGV’s GDP Monitor.

In May, the economy began to show signs that the worst moment of the economic crisis caused by the COVID-19 pandemic occurred in April, when economic activity retreated 9.3%, compared to March. The components of GDP that were hardest hit by the present crisis have shown a similar downward and upward trend. On the other hand, other services and construction activities declined further in May, although less than in April (0.9% and 1.5%, respectively).

Breakdown of demand components

Disaggregated graphical analysis of demand components was performed using annualized quarterly data, as it presents less volatility than the monthly and seasonally adjusted figures, allowing a better understanding of the trajectory of components. However, given that the social isolation restrictions due to the COVID-19 pandemic started in the middle of March, and they will have significant impacts on the economy throughout 2020, a breakdown of the monthly annualized rates for these components was also presented, following the usual presentation of the composition of the quarterly rate.

Household consumption

Household consumption fell 10.1% in the three months to May, compared to the same period of 2019. Service consumption accounts for almost half of this contraction, mainly due to sharp falls in private sector health care consumption, accommodations and food. Consumption of non-durable products is the only item that stayed virtually the same (-0.1%), after two consecutive months of decline in the annualized monthly rate.

Looking at the monthly figures year-over-year, it can be seen that all types of consumption declined in May, although consumption of semi-durable and durable products fell more than other types of consumption. The 52.8% drop in consumption of semi-durable goods is mainly explained by lower consumption of clothing and footwear, while the decrease in consumption of durable goods is broader, with reductions in the consumption of automobiles, home appliances, construction materials and electronic equipment in general.

Gross fixed capital formation

Gross fixed capital formation contracted 17.1% in the three months to May, compared to the same quarter of 2019. For the second consecutive moving quarter, all components decreased, although the 30.1% drop in machines and equipment was the biggest. Although all segments related to machinery and equipment fell, half the decrease in this component is explained by automobiles, vans, trucks and buses.

Year-over-year, the machines and equipment component also presented the biggest reduction in gross fixed capital formation, with decreases in purchases of both domestic and imported machines and equipment.

Exports

Exports of goods and services fell 1.3% in the three months to May, compared to the same quarter of 2019. The remarkable 33.8% growth in exports of agricultural products in this quarter stands out. Another highlight, this one negative, was the 47.8% drop in exports of capital goods.

For the second month in a row, the annualized decline in exports (6.6% in May) reflected decreases in all components except exports of agricultural goods. Once again, the biggest drop among export components was seen in capital goods, whose exports fell 58.8% in May.

Imports

Imports decreased 5.2% in the three months to May, compared to the same quarter of 2019. Although imports of capital goods and intermediaries had a positive contribution in this quarter, the 31.7% drop in imports of services canceled out this positive effect and largely explained the reduction in this component. The main highlight in the decline in imports of services was international travel.

Imports of services fell a lot, and together with declines in other import segments, this explains the 10.2% decrease in imports in May. On the other hand, it is worth highlighting the significant 84.2% growth in imports of capital goods.

The complete study is available here.

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