Brazilian industrial production grew by a meager 0.1 percent in June from May, per a fresh reading by the Brazilian Institute of Geography and Statistics (IBGE).
The slight growth was driven by extractive industries, up 2.9 percent in June, pushed by oil and iron ore production. Year-to-date industrial production is down 0.3 percent, although the sector remained stable in the 12 months through June.
IBGE research coordinator André Macedo says the June result shows continuation of a positive trend, although at a rate close to stability. “These two consecutive months of growth, however, are not enough to reverse losses registered in April, when production dipped -0.6 percent,” he explains.
Economist André Perfeito says the results are in line with market expectations, but highlights signs of significant economic vulnerability, with a 1.2 percent monthly decline in capital goods production.
“Another sign of weakness was the decline in durable consumer goods production, which fell by 4.6 percent in the month. Although this decline may have been due to government incentives, due to a high base of comparison, it is clear that the sector has not yet found the expected dynamism,” Mr. Perfeito said in a statement.
For Mr. Perfeito, capital goods and durable consumer goods groups are highly sensitive to interest rate variations. Therefore, the dip in industrial output reinforces “a sense of urgency for a more significant cut in interest rates.” The Central Bank’s Monetary Policy Committee meets on Wednesday — and expectations of cuts are near unanimous among market agents. The question is whether the policy rate will be slashed by 0.25 or 0.5 points.
Another sign of challenges in Brazil’s industrial sector is the fact that the industrial confidence index, surveyed by the Brazilian Institute of Economics at think tank Fundação Getulio Vargas, has fallen 2.1 points in July. It currently stands at 91.9 points, annulling gains made since March and returning to levels recorded in February (92.0 points).
“The decline was influenced by both the worsening perception of the current business situation and reduced optimism about the evolution of physical production in the coming months”, explained Stéfano Pacini, economist at the institute.
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