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June industrial production rebounds
In June, industrial production increased 6.6% over the same
month last year. The reading more than doubled the 2.5% expansion
registered in May in addition to coming in slightly above market
expectations, which had industrial output growing 6.4% growth in June.
The expansion was broad-based with 23 of the 27 categories composing the
index expanding over the same month last year. Nonetheless, automobile
production as well as rubber and plastic output were the primary drivers
behind the acceleration in the June reading. The seasonally adjusted
index corroborates the strong acceleration suggested by the annual data,
as industrial production increased 2.68% over the previous month, which
contrasted the 0.64% contraction seen in May. Nonetheless, despite the
pick-up registered in June, annual average growth remained unchanged at
May’s 6.7% level.
Consensus Forecast
participants expect industry to decelerate in the coming months, with
full-year growth reaching 5.2%, which is up 0.1 percentage points down
from last month’s projection. Next year, the pace of expansion in
industrial output is likely to decelerate to 4.2%.
Economic outlook
remains stable
After being granted
investment grade by two of the three major international rating agencies,
the outlook for this year remains stable. The domestic side of the
economy will maintain a robust pace and should help offset a deterioration
of the external sector, where imports are set accelerate more than exports.
Imports are favoured by the strengthening of the currency. At the end of
July, the Brazilian real was trading at 1.56 reais to the
dollar, which represented a nominal appreciation of 20.1% versus the US$
year-on-year. Despite the strong appreciation of the currency, exports
continue to grow at a very robust pace, as soaring demand for commodities
is helping offset the strong real. In July, exports expanded 44.8%
annually, reaching a new historic monthly high of US$ 20.5 billion.
Imports, however, continue to outpace exports and increased a staggering
59.2% year-on-year in the same month. Meanwhile, the domestic side of the
economy continues to show positive signs. In the second quarter,
industrial production expanded a solid 6.2% over the same period last year.
In addition, unemployment dropped for the fourth consecutive month in
June, reaching 7.8%, which is 1.9 percentage points below the level
observed in the same month last year. The Central Bank estimates that the
economy will grow 4.8% this year.
Consensus Forecast
panelists, share monetary authority’s assessment and see the economy
expanding 4.8%, which is unchanged from last month’s Consensus. Next year,
the pace of economic activity should decelerate with growth reaching 3.7%,
which is 0.2 percentage points below last month’s estimate.
Central Bank continues to
hike interest rates amid rising inflation
In July, consumer prices
rose 0.53% over the previous month, according to the benchmark consumer
price index (IPCA, Índice Nacional de Preços ao Consumidor Amplo).
The reading came in below June’s 0.74% rise but was broadly in line with
market expectations, which had prices adding 0.55%. The price rise was
broad-based as seven of the nine categories composing the index increased
over the previous month. That said, higher prices for food and beverages
as well as for personal expenses were the main drivers behind the price
rise. As a result of the July reading, annual headline inflation rose for
the tenth consecutive month, increasing from 6.1% in June to 6.4%, which
represents the highest level since June 2005. Before the publication of
the latest inflation data, on 23 July, the Central Bank Monetary Policy
Committee (COPOM, Comitê de Política Monetária) decided to raise
the benchmark SELIC interest rate 75 basis points from 12.25% to 13.00%.
The move represented the third time that the Central Bank raised the
benchmark interest rate this year. The next monetary policy meeting is
scheduled for 9 September, at which time the market expects further rate
hikes. Presently, monetary authorities see inflation ending the year at
6.0%, which is well above the 4.5% target for 2008 and close to the upper
ceiling of the ±2.0% tolerance margin around the central target rate. For
2009, monetary authorities expect inflation to decline to 4.7%, compared
with a previous estimate of 4.4%. Consensus Forecast participants are
less optimistic than monetary authorities and are expecting inflation to
moderate and close the year at 6.5%, which is 0.5 percentage points up
from last month’s forecast. For next year, Consensus Forecast
participants expect inflation to decelerate to 4.9%.
Current account deficit shrinks slightly
In the second quarter, the current account incurred a deficit
of US$ 6.7 billion. The reading contrasted the US$ 2.2 billion surplus
tallied in the same quarter last year, but represented an improvement
compared with the US$ 10.7 billion deficit registered in the first quarter
(previously reported: US$ 10.8 billion deficit). The improvement over the
previous quarter is the result of a larger trade surplus, which
compensated for a deterioration in the service and income balance. The
trade surplus grew from US$ 2.8 billion in the first quarter to US$ 8.5
billion. Exports accelerated from 13.8% annual growth in the previous
quarter to 32.5%. Imports accelerated less markedly from 41.9% to 58.7%.
On the other hand, the services and income balance deficit increased from
US$ 14.6 billion to a new historic high of US$ 16.1 billion. As a result
of the second quarter reading, the moving annual current account balance
deficit almost doubled from the US$ 9.3 billion deficit registered in the
first quarter to US$ 18.1 billion, the largest annual deficit in more than
five years.
Consensus
Forecast panellists anticipate exports to accelerate slightly this
year, while imports will pick up the pace notably. As a result, the
annual trade balance will drop from US$ 40.0 billion in 2006 to US$ 22.7
billion and the current account deficit will grow to US$ 26.0 billion this
year. |
