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Industrial production rebounds and beats market expectations
In April, industrial production increased 10.1% over the same
month last year. The reading was far above the 1.4% expansion registered
in March (previously reported: +1.2%) and also overshot market
expectations, which had predicted 9.5% growth in April. According to the
Brazilian Institute of Geography and Statistics (Instituto Brasileiro
de Geografia e Estadística, IBGE), the expansion was broad-based with
21 of the 27 categories composing the index expanding over the same month
last year. Nonetheless, the pharmaceutical sector as well as typewriters
and computer output were the primary drivers behind the acceleration in
the April reading. The seasonally adjusted index, however, does not
corroborate the strong acceleration suggested by the annual data, as
industrial production increased just 0.23% over the previous month, which
less than halved the previous month’s 0.57% expansion. Nonetheless, as a
result of strong annual growth registered in April, annual average
industrial output resumed the year-and-a-half long acceleration trend,
which had been briefly broken in March, and rose from 6.6% to 7.0%.
Consensus
Forecast participants expect industry to moderate the coming months, with
full-year growth reaching 5.3%, which is down 0.1 percentage points from
last month’s projection. Next year, the pace of expansion in industrial
output is likely to decelerate to 4.5%.
Brazil obtains second
investment grade rating
On 29 May,
international credit agency Fitch Ratings raised the country’s long-term
foreign currency debt rating from BB+ to BBB-, granting Brazil investment
grade status and placing the country in line with other nations such as
India and Peru and closer to higher-rated Chile and Mexico. This was the
second time in less than a month that the country experienced a rating
upgrade, following on Standard and Poor’s decision to raise the country’s
classification to investment grade in April. Typically, a country is
considered to be investment grade when at least two of the three major
international rating agencies rate the country as investment grade.
Currently, only Moody’s rates the country one level below investment grade
at Ba1. Consequently, sovereign debt from Brazil is now likely to be
treated as investment grade. Fitch highlighted improvements in external
and public sector balances, as the country has reduced its exposure to
exchange rate fluctuations. In addition, Fitch cited policy continuity
and inflation targeting as the reasons for its decision. The change to
investment grade will have a positive effect on the government’s and
companies’ financing costs and should buttress economic growth in the
medium to long term. This year however, economic growth will soften, as
the external sector is likely to lose ground amid the persistent
appreciation of the Brazilian real and slower global demand. At
the end of May, the Brazilian real was trading at 1.63 reais
to the dollar, which represented a nominal year-on-year appreciation of
18.2% versus the US$. Despite the strong real, in May
exports grew 41.5% over the same month last year to reach a record
US$ 19.3 billion. High commodities prices, in particular for oil and soy
beans were the principal reason for the strong increase. In addition, the
reading had been influenced by the end of the tax agents’ strike, which
had stifled exports in the previous months. Simultaneously, Imports added
55.5% annually in May to reach US$ 12.3 billion. Consequently the
monthly trade surplus jumped from US$ 1.7 billion in April to US$ 4.1
billion, the largest surplus since April last year. The forecast panel,
however, anticipates that export growth will slow to 13.5% for the full
year, down from the 16.6% growth tallied last year. Imports, on the other
hand are expected to grow 32.6%, up from last year’s 32.0% growth. The
domestic side of the economy, however, will likely remain robust and pick
up some of the slack from lagging global demand, buttressed by strong
investment, as the country begins to enjoy the benefits of investment
grade status and increased consumption. The Central Bank estimates that
the economy will grow 4.8% this year, which would mark a deceleration
compared to the 5.4% growth tallied in 2007.
Consensus Forecast panelists, however, are even slightly less
optimistic than monetary authorities and anticipate the economy to grow
4.7% this year, which is unchanged over last month’s figure. Next year,
the pace of economic activity should decelerate further, with growth
reaching 4.0%, which is 0.1 percentage points below last month’s estimate.
Central Bank raises
interest rates again
In April, consumer prices
rose 0.55% over the previous month, according to the benchmark consumer
price index (IPCA, Índice Nacional de Preços ao Consumidor Amplo).
The reading came in above March’s 0.48% rise but was slightly below the
0.59% increase expected by the market. The price rise was broad-based as
eight of the nine categories composing the index increased over the
previous month. That said, higher prices for food and beverages, as well
as for clothing were the main drivers behind the price rise. As a result
of the April reading, annual headline inflation rose from 4.7% in March to
5.0%, which represented the highest level since March 2006. Prompted by
rising inflationary pressures, the Central Bank Monetary Policy Committee
(COPOM, Comitê de Política Monetária) decided to raise the
benchmark Selic target interest rate another 50 basis point from 11.75% to
12.25% on 4 June. The Central Bank had raised the benchmark interest rate
for the first time in three years in on 16 April. Monetary authorities
currently expect inflation to end the year at 4.6%, 0.1 percentage points
above the 4.5% year-end target. Consensus Forecast participants are less
optimistic than monetary authorities and are expecting inflation to close
the year at 5.2%, which is 0.5 percentage points up from last month’s
forecast. For next year, Consensus Forecast participants expect inflation
to moderate to 4.5% |
