Brazil IP falling this year at double pace of H2 14

Year-to-date industrial production of Brazil fell 6.6% yoy until July and the pace of decline has nearly doubled from -3.7% yoy in H2 14. With the economy still in a considerable mess and domestic demand falling, there is little reason to believe in a quick turnaround. 

Some possibility for an improvement in external demand could come from the sharp depreciation of the real. However, it is too soon to anticipate an export led recovery in industrial production. As the continued decline in the dollar exports number shows, industrial production likely fell sharply again in August (SGe: -8.8% yoy, -0.3% mom), estimates Societe Generale.

Industrial production, which constitutes nearly a quarter of Brazil's GDP, declined by 3.2% in 2014 after printing modest 2.1% growth in 2013. The manufacturing sector's lack of competitiveness, weaker growth in trading partner countries and, more recently, declining domestic demand have all contributed to the fall. 

While the BRL has depreciated heavily over the past few quarters (and continues to do so), it is not yet clear if currency depreciation alone can lift exports and industrial production in the near term, although it certainly has improved export competitiveness, which could potentially revive the Brazilian manufacturing sector. 

"Our scepticism is primarily due to the difficult external demand situation. Also, a revival of investment in the manufacturing sector will only be possible over the longer run thanks to the prevailing bottlenecks", added SocGen.