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Domestic economy in doldrums
Recent economic data show that a robust recovery is unlikely to
materialize in the second half of the year, even though the Consensus
indicates that the economy should enter positive growth territory again in
the third quarter (0.5% year-on-year) with growth accelerating further in
the fourth (1.8% yoy). According to IBGE, industrial production declined
1.8% in August over the same month last year. The August figure
represented only a very moderate improvement over the previous month, when
output had declined 2.0%. However, in seasonally adjusted terms,
industrial activity actually increased over July, rising 1.5%, which was
up from the 0.9% increase observed in the previous month.
On a sectoral basis, all sectors remained in negative territory with the
exception of mechanical equipment production (+6.4% yoy), mining
activities (+1.7% yoy) and metals output (+1.0%). Output declines were
particularly pronounced in tobacco (-41.5%), beverages (-16.8% yoy) and
pharmaceuticals (-22.9% yoy).
On a positive note, capital goods production rose for the second
consecutive month in seasonally adjusted terms with growth reaching 1.5%
in August over the previous month, more than twice the 0.7% growth rate
observed in July. The improvement may be an indication that companies are
beginning to take advantage of the more favourable credit setting to step
up investment activities.
Private consumption is showing a similar pattern. According to IBGE,
national retail sales dropped 4.4% in July over the same month last year –
a slight improvement when compared to the 6.3% and 5.6% declines observed
in May and June respectively. However, Unemployment continued to rise in
August to 13.0%, which was up from 12.8% in the prior month, and remains a
key impediment to recovery.
External sector driving growth engine
In September, exports rose 12.1% over the same month last year, which was
up from the 11.3% growth rate observed in August. Similarly imports rose
15.5% for the same period, reversing a 10.7% drop in the previous month.
The annual trade surplus widened further in September to US$ 23.1 billion
from US$ 22.9 billion. A more competitive exchange rate and increased
demand for Brazilian exports are key factors behind the strong export
performance this year. The export drive is likely to help buffer the
economy from a more pronounced economic slowdown this year.
Outlook
revised downward amid confirmation of recession
The confirmation that the economy was in a deeper recession than
anticipated in the first half of the year has prompted Consensus
participants to revise growth forecasts downward again this month. GDP is
expected to grow just 0.7% this year, which is down 0.4 percentage points
from last month. Nevertheless, the declining interest rate setting and a
more stable exchange rate are likely to provide a more favourable backdrop
for growth next year, as the economy is seen by Consensus panellists to
pick up steam, with growth reaching 3.2% next year, which is unchanged
from last month. |
