Brazil’s industrial production likely grew again in June

In the past few months, the rate of contraction of Brazil’s industrial output has slowed down as compared to the second half of last year and early 2016. The seasonally adjusted index has recorded three straight monthly gains.

The index is expected to have grown again in June by 0.2 percent month-on-month, in spite of weaker annual growth of -8.5 percent year-on-year, noted Societe Generale in a research report.

“On our June forecast, industrial production likely contracted at a smaller pace of -7.7 percent yoy in 2Q as against -11.5 percent in 1Q and -11.7 percent in 4Q15,” added Societe Generale.

On a quarter-on-quarter basis, this might signify the first quarterly growth of 1.4 percent since first quarter of 2014. But keeping the recent growths aside, the industrial output continues to face serious challenges.

And even with the current rate, the industrial production contraction continues to be serious and is in line with almost 4 percent decline in GDP. The slowdown of the current decline is expected in the second half of 2016 given the stabilizing level of business sentiment.

But global and domestic demand continues to be suboptimal. Brazilian merchandise exports declined sharply in June, worst since September 2015. This indicates the degree to which the problem in assuming a continued recovery in demand and in industrial production.

This also shows a major downside risk to the June’s and second quarter industrial production’s projections, stated Societe Generale. Furthermore, with a quickening drop in domestic demand, the risks are expected to remain skewed on the downside in the coming few months.