Brazil Industry Unexpectedly Dips in Bad Start to Third Quarter

(Bloomberg) --

Brazil’s industrial production fell for the third consecutive month in July, frustrating an expected pickup in activity at the start of the third quarter.

Production fell 0.3% from June after two straight months of declines, the national statistics agency reported Tuesday. Analysts surveyed by Bloomberg expected a 0.5% increase. July output fell 2.5% from the same month a year ago.

Key Insights

• Brazil’s industry helped boost second-quarter GDP that grew twice as much as expected; still, activity remains relatively weak
• Investment was the highlight of second-quarter GDP; yet capital goods production, a barometer for investment, fell for the second straight month in July, according to the report
• The central bank has begun lowering its key interest rate, and is expected to continue easing at its meeting this month. There is debate over whether they will ease by a half or quarter percentage point.

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Swap rates on the contract maturing in January 2020 fell 3 basis points to 5.4% in early-morning trading. The contracts are indicators of market expectations for future interest rate decisions.

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• Of the 26 industrial sectors monitored, 11 fell in July from the previous month, according to the statistics institute.
• Capital goods output fell 0.3%, after a 0.4% decline the prior month.
• “The data show once again that the good second-quarter industry numbers presented in national accounts data must have been statistical smoothing that creates distortions,” Andre Perfeito, chief economist at Necton Investimentos, wrote in a note. “In general, industry remains weak and in line with a slow recovery.”

To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net

To contact the editors responsible for this story: Walter Brandimarte at wbrandimarte@bloomberg.net;Juan Pablo Spinetto at jspinetto@bloomberg.net

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