Brazilian industrial production seems to have expanded sequentially in August

Brazil’s industrial production is expanding; however. The annual pace of contraction in industrial production has slowed in recent months. On a seasonally-adjusted basis, the industrial production has grown in each month of 2016 except for February. This trend is expected to have continued in August. Industrial production in Brazil is likely to have grown 0.4 percent sequentially and contracted 4.1 percent year-on-year in August given the rebound in trade flows and the almost stable manufacturing PMI, according to Societe Generale.

On a year-on-year basis, the rate of contraction has possibly rebounded to its best level since June 2015 and if the monthly gains continue, the industrial production might continue to rise next year if not in the fourth quarter itself, stated Societe Generale. A further improvement in industrial production is likely in the coming few months, given the stabilizing and rebounding level of business sentiment.

Given the expansion in Brazil’s industrial production, the supply-side economic activity index is expected to have continued to move towards recovery phase in the third quarter. Hence, with continued growth in industrial production, the Brazilian economy might begin expanding on a sequential basis sooner than anticipated at the moment.

However, keeping the recent growth aside, industrial production continues to face certain challenges such as low export demand outlook. The exports outlook continues to be uncertain partially due to subdued commodity demand externally and partially because of a recent appreciation in the Brazilian real. Furthermore, the industrial production would find slight support from domestic demand in the near term to medium term.

“In a nutshell, the outlook for IP remains moderate at best unless sustained growth in exports materialises”, added Societe Generale.