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Industrial production expands faster than expected in December
In December, industrial production increased 6.4% over the
same month last year. The reading was below the 6.7% expansion registered
in the previous month, but came in above market expectations, which had
predicted 6.0% growth in December. Strong accelerations in machinery and
equipment as well as in automobile production were the primary drivers
behind the December reading. The seasonally adjusted index does not fully
corroborate the deceleration registered in December, as industrial
production declined 0.55% over the previous month, which was, nonetheless,
above the previous month’s 2.02% contraction. As a result of the monthly
figure, industrial output expanded 7.9% annually in the fourth quarter and
6.0% in the full year 2007.
Consensus Forecast
participants expect industry to moderate in the coming months, with full-year
growth reaching 5.0%, which is up 0.1 percentage points from last month’s
projection. Next year, the pace of expansion in industrial output is
likely to decelerate slightly to 4.5%.
Unemployment drops to
lowest level in more than a decade
While the economy
appears to have slowed towards the end of last year, economic growth
remained solid, as the effects of the monetary policy easing implemented
in the first half of the year continued to stimulate the economy in the
second half. Recent economic indicators highlight the economy’s
robustness, and in particular, the strength of the domestic sector. In
December, unemployment dropped to 7.4% from 8.2% in the previous month,
the lowest level in over ten years, under the current methodology. The
steady decline in unemployment continues to fuel retail sales growth,
which added -.-% year-on-year in real terms in November. Meanwhile, on
the external side of the economy, the strong Brazilian real appears
to be curbing export growth slightly. In December, exports increased
16.0% compared to the same month the year before, which was down from the
previous month’s 18.1% expansion. Despite the deceleration, exports
reached US$ 160.7 billion in 2007, the highest level ever observed.
Against this background, the government estimates the economy to have
grown at least 4.5% in 2007 and expects economic growth to accelerate to
5.0% this year. Consensus Forecast panellists estimate the economy
to have expanded 5.2% in 2007, which is up 0.1 percentage points from last
month’s figure. This year, the pace of economic activity should
decelerate slightly, with growth reaching 4.6%, which is up 0.1 percentage
points from last month’s estimate.
Inflation finishes the year at Central Bank target
In December, consumer prices rose 0.74% over the previous
month, which came at almost double the 0.38% rise registered in November,
but was in line with market expectations of a 0.75% price increase.
Higher prices for food and beverages as well as for personal products were
the main drivers behind the rise prices. Owing to the December reading,
annual headline inflation increased strongly from 4.2% in November to
4.5%. Nonetheless, the year-end inflation rate was in line with the
Central Bank’s target of 4.5% for 2007. As a result of the benign
inflationary environment, the Central Bank Monetary Policy Committee (COPOM,
Comitê de Política Monetária) the decided to keep its benchmark
Selic target interest rate unchanged at 11.25% at its monthly meeting on 5
December. As a result, the Selic rate, which has been cut by a total of
850 basis points since August 2005, ended 2007 at a historic low. For
this year the Central Bank expects inflation to moderate and finish the
year at 4.3%. Consensus Forecast participants are more optimistic than
monetary authorities and are expecting inflation to moderate and close the
year at 4.3%, which is 0.1 percentage points up from last month’s forecast.
For next year, Consensus Forecast participants expect inflation to
moderate, albeit slightly, to 4.2%
Current account records first deficit in five years
In the fourth quarter, the current account incurred a deficit
of US$ 2.1 billion. The reading represents a strong decline compared to
the US$ 1.0 billion surplus registered in the third quarter. Furthermore,
the fourth quarter figure represents a drastic deterioration over the US$
3.4 billion surplus tallied in the same quarter of the previous year, as
well as being the first quarterly current account deficit in five years.
The deterioration of the current account balance over the previous quarter
is the result of both a smaller trade surplus as well as a greater
services and income deficit. The trade surplus decreased from US$ 10.3
billion in the third quarter to US$ 9.1 billion. Nonetheless, export
growth improved over the previous quarter (Q3: +8.7% year-on-year; Q4:
+19.5% yoy). However, imports grew at an even faster pace, accelerating
from 31.0% annually in the third quarter to 42.0%. On the other hand, the
services and income account deficit increased from US$ 10.3 billion to a
historic high of US$ 12.2 billion. As a result of the subdued fourth
quarter reading, the annual account surplus fell from the US$ 13.6 billion
registered in 2006 to US$ 3.6 billion in 2007, the smallest surplus in
five years. Consensus
Forecast panellists anticipate exports to decelerate significantly
this year, while imports will moderate less notably. As a result, the
annual trade balance will drop from US$ 40.0 billion in 2007 to US$ 31.1
billion and the current account surplus will shrink and become a deficit
of US$ 5.5 billion this year. |
