Industrial production and demand leakage: an analysis of the Brazilian economy

Abstract The scenario of economic slowdown has raised discussions about the growing demand leakage in the Brazilian economy, given the resultant gap between industrial production and domestic demand. By considering the recent changes in the relationship between industrial production and international trade, this paper goes beyond the indicators traditionally used to measure domestic demand for industrial goods. Using input-output tables estimated annually, we explore a complementary way to analyze both the penetration of imports and the imported inputs coefficients. The stimuli generated by an increase in imports (and production) of a specific sector have not been spread, with greater intensity, by the Brazilian productive matrix, pointing to a regression in the productive matrix. Meanwhile, the demand leakage multiplier indicates a sharp deterioration of the domestic productive capacity to accommodate increases in domestic and foreign demand. Thus, this study portrays the worsening of the Brazilian industrial scenario.