Brazil’s industrial production likely to have contracted again in April

The PMI surveys suggest that pace of contraction in Brazil’s industrial production is heavier in April. Industrial production had shrunk in Q1 by 11.6% y/y and by 11.9% y/y in Q4 2015. But with the rebound in exports, industrial production is expected to have declined at its recent pace. It is likely to have contracted 11% y/y in April, said Societe Generale in a research report. Meanwhile, on a month-on-month basis, industrial output is expected to have declined 1.6%, suggesting that the Brazilian economy will continue to be in deep recession in the second quarter and shrink at the rate witnessed in the past few quarters, added Societe Generale.

Even if the contraction rate is seen stabilizing at about current levels, it continues to be deep and is in line with more than 4% contraction in overall GDP. The current contraction rate is likely to moderate in the second half of this year, given the level of stabilization of business sentiment, noted Societe Generale. But the global and domestic demand continues to be in sub-optimal shape.

With the rise in the domestic demand’s rate of contraction, the risks are expected to have remained skewed on the downside. Furthermore, there is not much confidence that improvement in competitiveness because of BRL’s decline will be enough to rebound trade outlook significantly, especially when the outlook of global growth appears to have worsened further. Therefore, there is very little possibility that the industrial production will return to growth in 2016.