BRAZILIAN FOOTWEAR: Lower growth forecast for 2023
Global inflation, the increase in interest rates in the United States and the growing indebtedness of Brazilian families should impact the growth of the footwear sector in 2023. In 2022, growth should be around 3.9% in production, compared to 2021, while next year the increase should be lower, around 1.6%.
These and other data were disclosed in mid-November, during the Scenario Analysis, a digital event held by the Brazilian Footwear Industries Association -ABICALÇADOS- that included presentations by the entity's Market Intelligence coordinator, Priscila Linck, and Marcos Lélis, doctor in economics and sector consultant.
In the first part of the event, Lélis highlighted that world inflation, driven by post-Covid 19 logistical problems and now by the conflict in Eastern Europe, added to the slowdown of the main world economies, such as the United States and the Eurozone, will be decisive for the lower growth dynamics of the footwear sector in 2023. "In an attempt to control inflation, we also saw the United States increase interest rates, which has an impact on the exchange rate", he said. According to him, in this scenario of a slowdown in the world economy, the forecasts for world GDP growth in 2023 are revised downwards. "In 2023, the world should grow by only 2.7%, the worst result in the last three years", he said.
Lélis also pointed out that the Brazilian economy follows global dynamics and that it has been slowing down in the last months of 2022. “In Brazil, in addition to macroeconomic problems, family debt is at 80%, a record figure. This has a direct impact on consumption, since people choose to consume the basics for subsistence", he evaluated and pointed out that "today the basic food basket consumes 59% of the minimum wage, well above the historical level. In 2018, the basic food basket consumed 47% of the salary”, he said.
In an attempt to contain Brazilian inflation, high interest rates are also a reality with a significant impact on investments. Currently, with accumulated inflation of 7.2% in the last 12 months, the Central Bank has been increasing the Selic reference rate. “Brazil has the highest interest rate among the G20 countries, with the exception of Argentina. By 2022 we should close with a rate of 13.75%, while in 2023 we should not notice a large reduction, ending up around 11.25%”, Lélis projected. In this scenario, according to the consultant, the Brazilian GDP should grow 2.76% in 2022 and only 0.68% in 2023.
Next, Priscila Linck highlighted the scenario specifically for the footwear sector. “Here, in addition to the economic problems already listed, the drop in imports from the United States, the Argentine crisis and the resumption of Chinese exports impact our main footwear markets”, she said. According to her, between January and September 2022, footwear production reached 621 million pairs in Brazil, 4.7% more than in the same period last year. The growth dynamics, however, has slowed down in the last months of the year. For 2022, the economist projected a 3.9% growth in shoe production, closing the year with 851 million pairs produced. As for 2023, the forecast is for a more timid growth, of 1.6%. “We will maintain a growth trend above other economic sectors. The general Brazilian GDP in 2023 must grow by 0.7%, so we have twice the growth”, Priscila highlighted.
The growth of the sector in 2022 was directly reflected in the increase in the level of employment. Between January and September, the activity generated 44,000 new jobs, closing the period with more than 310,000 people directly employed, the best record in seven years.
Exports, which played a decisive role in the growth of footwear production throughout 2022, are expected to decline during 2023. Between January and October, the sector exported 119 million pairs, generating US$1.1 billion, a growth of 20% in volume and 55% in turnover compared to the same period last year. However, she pointed out that the market has already been reflecting the international slowdown and the increase in Chinese competition in the last two months. In September, in relation to the same month of 2021, the drop in pairs was 6%, while in October this same drop was 12.7%. China's footwear exports are growing, having risen nearly 11% in the period. “The trend for 2023 is for exports to lose share in Brazilian production. In 2022 we reached an export coefficient of 17.4% of production, much higher than historical levels. By 2023, this coefficient should adjust and remain at 15.4%, which also denotes the increased weight of the domestic market", the coordinator projected.
According to Priscila, in 2022 exports should grow around 14% compared to 2021, in pairs, totaling more than 133 million pairs shipped abroad. By 2023 there should be a drop of 5.7% compared to 2022, although the sector remains positive in relation to the pre-pandemic, in 2019, at 15.3%. “The increased share of Chinese imports, mainly in important markets for our footwear, such as the United States and Argentina, will have a significant impact”, she noted.
The Scenario Analysis is an event held twice a year by ABICALÇADOS with the aim of providing relevant information for the Brazilian footwear sector, helping it in decision making.
As a consequence of the increased manufacturing of the local industry and an increase in exports of materials, supplies and components, particularly to Latin America, Brazilian suppliers obtained good results during 2022. Only between January and September 2022, sales abroad grew 22 % compared to the same period in 2021. Although October registered a drop, it was an expected adjustment given an atypical end of the year, and the positive behavior was maintained.
ASSINTECAL, the association of industries that supply materials, supplies, components and machinery for the footwear and manufactures industry, with the collaboration of APEX -export promotion agency- through the By Brasil project, has made significant progress in internationalization of the sector, through missions and participation in fairs in different countries.
Until October 2022, the largest buyer of Brazilian materials and components was Argentina, with US$ 76 million, 37% more than in 2021. Then, China with US$ 65.7 million, mostly chemical products; followed by Portugal with US$ 44.3 million, 36% more than in 2021, and finally the United States with US$ 9 million, 56% more than in the previous year.
The products exported by turnover were: uppers US$ 94.8 million; chemicals and adhesives US$ 42.4 million and soles US$ 23 million.
Due to the slowdown in the international economy, the probable low growth in Brazil, the rise in interest rates and multiple factors in the global context, the supplier sector made a projection of an 8% increase in exports of materials, components and machinery.
For this, progress will continue in bilateral agreements, the strengthening of relations with South, Central and North America, as well as regions of Europe and Africa. Other added values of the Brazilian supply is the high degree of sustainability of the offer and its fashion content.
