Brazil Industry Expands for Fourth Month as Confidence Grows

Updated on
  • Business confidence reaches highest level in two years
  • “Industrial cycle now starting to recover,” says Goldman

Brazil’s industrial output rose for a fourth consecutive month in June as a rebound in business confidence fuels an incipient recovery in Latin America’s largest economy.

Production rose 1.1 percent in June from the previous month, in line with the median forecast from 37 economists surveyed by Bloomberg. Four of the five previous months’ figures were revised upward, including the result for May which marked a 0.4 percent expansion from a previously reported zero growth. From a year earlier, industrial production fell 6 percent, the national statistics agency said Tuesday.

“Following a three-year long recession, the industrial cycle has stabilized and is now starting to recover supported in part by a less overvalued currency and the recovery in both consumer and business indicators,” Goldman Sachs’ senior economist Alberto Ramos wrote in a note to clients.

Brazil’s business confidence has rebounded as Acting President Michel Temer labors to push measures through Congress that would limit public spending and trim the deficit. Buoyed sentiment is reflected in a string of positive capital goods output numbers, even with borrowing costs at their highest level since 2006. The market is betting the central bank will start lowering the Selic rate at its October monetary policy meeting.

Output of capital goods, a barometer of investment, rose 2.1 percent in June, its sixth straight month of gains. Production of consumer goods rose 1.2 percent. Brazil’s industrial confidence in July reached its highest level in almost two years, rising from its lowest ever last October.

The central bank’s monetary policy committee has held the Selic at its current level for eight straight meetings, in spite of Temer saying he hoped the monetary authority would lower borrowing costs. Most recently, board members voted unanimously at their July meeting -- the first presided over by Ilan Goldfajn -- to keep the key rate unchanged.