Itaú BBA - Industrial production expands in December

Macro Brazil

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Industrial production expands in December

February 1, 2017

Aggregate result is higher than suggested by diffusion index

Industrial production increased sharply in December (2.3%), but the result was below expectations. Over the coming months, we expect the cyclical adjustment in inventories to continue as demand remains above production levels. Along with the extension of monetary easing, this scenario points to growth in manufacturing going forward.

Aggregate result is higher than suggested by diffusion index

Industrial production expanded 2.3% mom/sa in December, below our forecast (3.2%) and market estimates (2.4%). Compared to December 2015, the indicator fell 0.1%.In 2016, industrial production declined 6.6% vs. 2015.

On a monthly basis, production increased in 3 out of 4 main economic categories: intermediary goods (1.4%), durable consumer goods (6.5%), and semi-durable and non-durable consumer goods (4.1%). Capital goods production fell 3.2%.

Breaking down by activity, extraction and mining expanded 1.6%, while manufacturing advanced 1.5%. On a more detailed breakdown, 16 out 24 activities posted monthly gains (66.7% diffusion). Vehicle production (10.8%), information technology and electronics(15.2%), rubber and plastic items (8.3%), and apparel (10.9%) stood out. On the opposite end, pharmaceuticals (-11.7%), pet coke and oil byproducts (-1.9%) provided the main negative contributions.

Construction materialproductionadvanced 0.4%. Our gross fixed capital formation indicator climbed 6.9% in December, but receded 3.9% in 4Q16, suggesting another quarterly decline in investments.

We expect the cyclical adjustment in inventories to continue

Coincident indicators (power consumption, imports and capacity utilization) point to higher industrial production in January. Fundamentals continue to suggest growth ahead. Inventories declined again in January and industrial demand posted another increase.

In our view, monetary easing will fuel a gradual increase in industrial demand. Hence, we maintain our forecast of higher industrial production over the coming months.

See our Heat Map of industrial output below. For complete methodology, see our report Heat Map of Industrial Output


 

Rodrigo Miyamoto


 



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