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Industrial production continues to strengthen
In July, industrial production increased 8.5% over the same
month last year. The reading came in above the 6.4% expansion registered
in June and exceeded market expectations, which had industrial output
growing 8.0%. The expansion was broad-based, with 17 of the 27 categories
composing the index picking up the pace over the previous month.
Nonetheless, chemical product output as well as publishing and printing
were the primary drivers behind the acceleration in the July reading.
Furthermore, the seasonally adjusted index corroborates the strong annual
growth observed in July, as industrial production increased 1.04% over the
previous month. As a result of the pick-up registered in July, annual
average growth of industrial production inched up from 6.7% in June to
6.8%. Consensus
Forecast participants expect industry to moderate in the coming months,
with full-year growth reaching 5.2%, which is unchanged over last month’s
projection. Next year, the pace of expansion in industrial output is
likely to decelerate to 4.2%.
Strong domestic sector
to keep economy buoyant
The outlook for this
year remains stable, as the domestic side of the economy will keep a solid
pace and will thus help to offset the deterioration of the external
sector. Data from the domestic side of the economy indicate continued
resilience. In August, the consumer confidence index added 6.3 points
over the previous month to reach 108.2 points, after having dropped for
two consecutive months. The improvement reflects increased consumer
optimism regarding both their current situation and that for the next six
months. With this move, the consumer confidence recovered all of the
ground that it had lost during the last few months. Consumer confidence
is also supported by declining unemployment. While the 8.1% unemployment
registered in July was up from the previous month’s 7.8% figure, it came
in well below the 9.5% rate registered in same month of the previous year.
In addition, business confidence also improved. The industrial confidence
index increased from 121.5 in July to 122.8 in August, which nearly marked
a historic high. Currently, businesses expect domestic demand to remain
robust in the coming months, despite further monetary tightening on the
horizon. On the external side of the economy, the appreciation of the
Brazilian real continues to favour imports. By the end of August,
the currency was trading at 1.63 reais to the dollar, which
represented a nominal appreciation of 21.1% versus the US$ year-on-year.
However, despite the strong appreciation of the currency, exports continue
to grow at a healthy pace, as soaring demand for commodities is
compensating for the currency’s strength. In August, exports expanded
30.8% annually, reaching US$ 19.7 billion. Imports, however, continue to
outpace exports and increased 51.2% year-on-year in the same month.
Despite the decreasingly positive net contribution of the external sector,
the Central Bank estimates that the economy will grow 4.8% this year,
which is only moderately below the 5.4% growth registered in 2007.
Consensus Forecast panellists, share the Central Bank’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 also unchanged over last
month’s estimate.
Inflation moderates in
August
In August, consumer prices
rose 0.28% over the previous month, according to the benchmark consumer
price index (IPCA, Índice Nacional de Preços ao Consumidor Amplo).
The reading came in below July’s 0.53% rise and even a notch below market
expectations, which had prices adding 0.31%. 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 housing as well as for
personal expenses were the main drivers behind the price rise. In
contrast to previous months, food and beverages registered a month-on-month
price decline in August. As a result of the subdued monthly price
increase, annual headline inflation fell for the first time since January
2007, decreasing from 6.4% in July to 6.2%. At its last meeting on 23
July, the Central Bank Monetary Policy Committee (COPOM, Comitê de
Política Monetária) raised the benchmark SELIC interest rate from
12.25% to 13.00%. The move represented the third time that the Central
Bank raised the benchmark interest rate this year and was in line with
market expectations. 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. Finance Minister Guido
Mantega recently stated that the government sees inflation ending the year
at 6.5%, which would be right at the top edge of the Central Bank’s
tolerance margin. For 2009, monetary authorities expect inflation to
decline to 4.7%. Consensus Forecast participants share the government’s
assessment and expecting inflation to accelerate and close the year at
6.5%, which is unchanged from last month’s forecast. For next year,
Consensus Forecast participants expect inflation to moderate to 4.9%. |
