Brazil's industrial production is expected to have declined to 11.5% y/y in Q4, in spite of a likely first sequential gain in December of 0.3% m/m. IP had fallen by 9.6% y/y in Q3 after declining by 6.5% in Q2 and 5.8% in Q1. The recent overall demand conditions and business conditions have given slight hope for a rebound at this stage. The pace of contraction is likely to decline in 2016. However, the sharp decline in recent months puts the annualised growth forecast for Q4 and 2015 at risk. Recent trade data have slightly helped manufacturing exports after the sharp decline of BRL.
"We expect external demand prospects to improve, eventually leading to some improvement in IP and a stabilisation of the pace of contraction, though we still expect the economy to contract very heavily (-3.2%) in 2016", says Societe Generale.
However, weakness in domestic demand will remain a major influence on the contraction of industrial production and the main source of economic contraction. Meanwhile, net exports are likely to considerably contribute to growth.
