Itaú BBA - Evening Edition – Industrial confidence increases in Brazil

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Evening Edition – Industrial confidence increases in Brazil

Agosto 26, 2019

The installed capacity utilization level increased slightly to 75.8%, still suggesting a slack in production factors.

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According to FGV’s monthly survey, business confidence in the industrial sector advanced 0.8 p.p. to 95.6 in August, a level that is still low. The breakdown shows increases in both the current conditions (+1.2 p.p.) and the expectations component (+0.4 p.p.). The final indicator printed better than the preview released last week, when industrial confidence increased only by 0.2 p.p. The installed capacity utilization level (NUCI) increased to 75.8% (from 75.5% in July), still suggesting a slack in production factors.

On the external sector, the current account posted a USD 9.0 billion deficit in July, wider than our forecast (USD -7.0 billion) and market estimates (USD -6.0 billion). The current account deficit accumulated over 12 months increased to USD 24.4 billion or 1.3% of GDP. For the next years, we maintain our expectation of a gradual increase in the current account deficit, but not to the point of compromising the sustainability of Brazil’s external accounts. In the financial account, direct investment in the country added up to USD 7.7 billion, printing close to our estimate and the market consensus (USD 7.2 billion and USD 7.0 billion, respectively) and remains the biggest source of financing for the current account deficit. ** Full story here.

The BCB released today its weekly survey with market participants (Focus). The median of GDP growth forecasts declined 3 bps for 2019 (to 0.8%) and returned to the 2.10% pace of growth for 2020 – after the 10 bps increase in the previous week to 2.20%. For 2021, the median of GDP growth forecasts remained stable at 2.5%. Similarly, the median of IPCA inflation expectations for 2019 receded 6 bps to 3.65%, and 5 bps for 2020 (to 3.85%). For 2021, inflation expectations remain anchored at the 3.75% BCB’s target. Following an environment of moderate growth and benign inflation domestically amidst heightened uncertainty abroad, the year-end Selic rate forecasts declined to 5.25% for 2020 (from 5.50%), while it has remained stable at 5.00% for 2019 and at 7.00% for 2021. Finally, the median of exchange rate expectations oscillated to BRL 3.80/USD for 2019 (from 3.78) and BRL 3.85/USD for 2021 (from 3.86). The forecasts remained at BRL 3.81/USD for 2020.

Finally, a CNT/MDA poll on president Bolsonaro’s approval rate, conducted between August 22–25, shows that 29.4% consider his administration as “good” or “excellent”, close to the 33% shown in the latest Datafolha poll (of July 8). On the other hand, 39.5% evaluate it as “bad” or “horrible”, significantly above the 33% observed in the Datafolha Poll. In the previous MDA survey (of February 26), 38.9% considered Bolsonaro’s administration as “good” or “excellent”, while 19% considered it as “bad” or “horrible” – well below the level seen in this new MDA poll.

Tomorrow’s Agenda: At 8:00 AM, FGV will publish August’s confidence for the construction sector.


Tomorrow’s Agenda: At 8:00 AM, INEGI will announce July’s trade balance, which we expect to post a deficit of USD 0.2 billion. At the same time, July’s unemployment rate will be released, which we expect to post at 3.6%.

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