Brazil’s industrial production likely grew on month-on-month basis in May

Brazil’s industrial production is likely to have grown on a month-on-month basis, but is expected to have continued to contract on a year-on-year basis in May. Industrial output had shrunk 11.9 percent year-on-year in the fourth quarter of 2015, followed by a contraction of 11.6 percent year-on-year in the first quarter of this year. Industrial production in Brazil improved to a contraction of 7.2 percent year-on-year in April.

However, the PMI surveys indicate towards a heavier contraction pace in May as compared to the trend derived using trade and April’s industrial production figures.

Therefore, Brazil’s industrial production is likely to have shrunk 8.2 percent y/y in May; however, it is expected to have grown significantly by 0.5 percent on a month-on-month basis, said Societe Generale in a research report. On sequential basis, industrial production appears to be growing for the third straight month, a trend not seen since 2012.

Even if the rate of contraction appears to be stabilizing, it continues to be acute and is in line with more than 4 percent decline in GDP. Given the stability in the level of business sentiment, a slowdown in the current decline is expected in the second half of this year.

But global and domestic demand continue to be suboptimal. With domestic demand declining at a rapid rate, the risks are likely skewed on the downside, even if exports appear to be expanding again, according to Societe Generale.