Itaú BBA - Industrial production remains weak in Brazil

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Industrial production remains weak in Brazil

June 5, 2019

Our preliminary forecast for May’s industrial production is a 2% mom/sa decline

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Industrial production increased 0.3% mom/sa in April, slightly above our forecast (0.2%) and below the median of market expectations (0.7%). The 3-month moving average rate with seasonal adjustment declined 0.1%. In year-over-year terms, the index receded 3.9% – also close to our estimate (-4.0%) and below the market’s (-3.0%). Manufacturing advanced 1.2% mom/sa in the period, while mining/extraction dropped 9.7%, possibly reflecting lower iron ore production following the dam collapse in Brumadinho. Looking at the breakdown, only production of intermediate goods declined in April (-1.4%). Production of semidurable/non-durable goods advanced 2.6%, while capital goods increased by 2.9%. Meanwhile, production of durable consumer goods reached its highest level since June 2018 (seasonally adjusted), after a 3.4% increase during the month. The two components that are more closely related to capital investments, capital goods and construction material, also expanded in April, but remain at low levels. Our preliminary forecast for May’s industrial production is a 2% mom/sa decline, which reinforces the downside risk to our GDP growth expectation of 1% in 2019. ** Full story here.


The results of the central bank’s traders survey ahead of the June Monetary Policy meeting are in line with the outcomes from last month, retaining the view of stable rates for at least a year, while the next move is still as a hike. The short-term (1-year) inflation expectations stayed at 2.8%, while the relevant 2-year inflation forecast is anchored at the 3.0% target. The policy rate is seen remaining at 3% for the next twelve months, while 3.25% is the two-year outlook. The Chilean peso is expected to remain near spot levels over the next month (around 700 pesos per dollar; and broadly in line with the levels recorded at the close of 2018). On Friday, the central bank will announce its monetary policy rate decision before publishing the 2Q19 Inflation Report (IPoM) the following week. With the IPoM set to communicate any potential change in the baseline scenario for the policy rate trajectory, we expect a decision to hold the policy rate at 3%.

Day Ahead: The central bank will publish the monthly GDP proxy (Imacec) for April at 9:30 AM, which we expect to grow 0.4% mom/sa, leading the annual growth to 1.9% in the period.


Consolidating internal demand and low oil prices led to a rising current account deficit in 1Q19. The USD 3.6 billion deficit in 1Q19 (4.6% of GDP) came in above our expectation (USD 3.3 billion), and was USD 808 million larger than in 1Q18 (3.5% of GDP). The resulting rolling-4Q deficit increased to 4.3% of GDP (compared to 3.9% in 2019 and 3.3% in 2017), the highest level since 2016. However, at the margin, our own seasonal adjustment shows the deficit narrowed to 4.3% of GDP in 1Q19 from 5.1% in 4Q18, led by a narrowing of the income deficit.

Day Ahead: At 2:00 PM, inflation for the month of May will be released. We expect a month-over-month reading of 0.34% (from 0.25% in the same month of last year), resulting in annual inflation of 3.34%.


Day Ahead: At 4:00 PM, manufacturing and construction data for April will see the light. We expect to see another year-over-year drop in manufacturing activity, which fell 13.4% yoy in March. Additionally, the carmakers association (ADEFA) will release May’s data on production, exports and domestic sales to car dealers


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