Brazil’s industrial production likely to have contracted further in October

Brazil’s industrial production continues to shrink, while the outlook is not remarkably better either, noted Societe Generale in a research report. In September, the industrial output had bounced back but was weaker than anticipated after a slump in August. As such, the industrial production growth continues to be negative and remains a drag on the economy. The last positive year-on-year growth was recorded in February 2014.

On a seasonally adjusted basis, the industrial production has recorded positive ticks in several months in 2016, and yet, the severe contraction in February and August overshadowed all the gains, said Societe Generale.

“We expect IP to contract by a further 4.0 percent yoy in October (with a very small seasonally adjusted mom gain of 0.2 percent)”, added Societe Generale.

Industrial production contributes almost 22 percent to the GDP growth. It has now accounted for almost half of the contraction in the economy since the end of 2014. It was anticipated that the sharp depreciation in Brazilian real last year would ultimately make way for a significant rebound in the manufacturing and the industrial production outlook.

However, the appreciation of the Brazilian real and the subdued external demand growth have both held back the resurgence of the manufacturing sector, said Societe Generale. Industrial production is likely to bottom out in the next few months, but is unlikely to have a sustained surge in the medium term.