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Economy
showing signs of moderate recovery led by industry
The lower interest rate setting resulting from an easing of monetary
policy over the past five months, along with the strengthening of the
exchange rate, is beginning to help ease the economy out of recession.
According to IBGE, industrial production rose 4.2% over the same month
last year, contrasting the 1.8% contraction observed in the previous month
and representing the strongest growth rate registered since February this
year. In seasonally adjusted terms output jumped 4.3% over August, which
was almost triple the 1.2% pace observed in the prior month. Most
industries expanded, with leather goods and mechanical equipment leading
the September expansion, adding 11.8% and 10.6% respectively.
Pharmaceuticals, tobacco, beverages, clothing, plastics and non-metal
mining output, on the other hand, declined over the same month last year.
The September industrial production data show that firms are also stepping
up investment activities, as capital goods output surged 8.6% (-3.0% in
August) over the same month last year – the highest growth rate observed
since October 2001. Intermediate goods production lagged behind but
nevertheless registered a healthy 4.3% expansion (+0.2% in August), while
consumer goods output experienced moderate 1.5% growth (-7.1% in August).
Investment picking up steam but consumption lags
Trade data also show that investment activities experienced a strong surge
in September. According to the Ministry of Development, Industry and
Trade, capital goods imports rose 21.8% in September, which was in stark
contrast to the 0.9% contraction observed in the previous month. However,
private consumption continues to remain in a slump. National retail sales
dropped 5.9% in August, which represented a deterioration over the
previous month, when activity declined 4.4%. Similarly, more recent data
from the Brazilian Supermarket Association (ABRAS, Associação Brasileira
de Supermercados) show that private consumption contracted 9.7% in
September over the same month last year, which was down from the 3.9% drop
observed in the previous month. Real wage deterioration is one of the key
factors behind the current slump in consumption. According to IBGE,
average real wages dropped 1.6% in August and remained 14.2% below their
level for the same month last year.
Nevertheless, the recent strengthening in the exchange rate and the
concomitant rise in real wages along with the likelihood for increased
lending should lift consumption, while investment is likely to rebound
strongly amid the more favourable interest rate setting. In fact,
Consensus participants expect the economy to have formally exited the
recession in the third quarter with growth reaching 0.1% over the same
quarter last year. Furthermore, economic activity should accelerate in the
fourth quarter to 1.7%. However, despite the year-end pick up in economic
activity, full year growth is seen to reach an anaemic 0.6% in 2003, which
is down a 0.1 percentage point from last month’s forecast. The anticipated
rebound in domestic demand will boost economic activity next year, with
growth seen accelerating to 3.3%, which is up a 0.1 percentage points from
last month. |
