Brazil: June’s industrial rebound does not eliminate downside risks – Rabobank

Analysts at Rabobank note that in June, Brazil’s industrial production (IP) pays back to May’s slump on fading effects of the truckers’ strike as the headline jumped 13.1% m/m (+3.5% y/y), recovering from a nosedive of 11.0% m/m (-6.5% y/y).

Key Quotes

“The details show that the June rebound was across the board, as Brazilian manufacturers got back in business. Yet trend growth is weakening in all industrial segments.”

“The zigzagging in Q2 also shook our high-frequency proxies for aggregate investment: we calculate a 7.7% m/m rebound in June from a 10.1% m/m tumble in May.”

“While June IP data confirm (ex-ante) expectations that the immediate effects from the truckers’ strike would be temporary, this recovery does not sufficient to spare the industry (supply-side) and investment (demand-side) from a sequential contraction in Q2.”

“And with other sectors also affected (e.g. services), the broad economy may probably take a step back as well. We look for a -0.1% q/q reading for IBGE’s official Q2 GDP release.”

“High political uncertainty, lower economic confidence, worse financial conditions, all could weigh on the sequential pace of recovery in H2, so that downside risks still loom our full-2018 GDP projection (currently at +1.3%; 2017: +1.0%).”