Brazil economy: Quick View - Economic output fell in May

July 18th 2017

Event

Economic activity declined by 0.5% month on month in May on a seasonally adjusted basis,
according to the IBC-Br, an economic activity index (and a proxy for GDP) published by the Banco
Central do Brasil (the central bank).

Analysis

The data for May, which were disappointing, reflected divergent results for industrial production,
retail sales and services sectors, according to monthly surveys carried out by the national statistics
institute. Industrial production (IP), which includes the manufacturing and extractive industries,
recorded a surprisingly positive result, growing by 0.8% month on month on a seasonally adjusted
basis. This lifted output growth in January-May to 0.5% year on year.

The gains were broadly disseminated, with 17 of the 24 sectors in the IP survey registering month-
on-month expansions in May. All major categories recorded growth: consumer goods expanded by
1.3% (durables by 6.7%, owing to a 12.9% rise in vehicles production), capital goods by 3.5% and
intermediate goods by 0.3%. However, leading indicators for June suggest that IP declined again,
driven by lower vehicles production.

Although IP made gains in May, retail sales fell by 0.1% on a month-on-month, seasonally and
inflation-adjusted basis. This took the year-on-year fall to 0.8% in January-May. The broader
measure of retail sales, which includes vehicles and construction materials, posted a decline of
0.7% in May (and a fall of 0.6% in January-May year on year).

The May retail sales data show that consumer confidence remains weak, amid high
unemployment (over 13%) and persistent household balance-sheet pressures. This is despite the
fact that a monetary-easing cycle that began last October has begun to ease interest rates, and
real wages are rising as inflation abates. Services sector output grew by only 0.1%, leaving activity
levels 4.4% lower year on year in January-May.

Fuente: Economist Intelligence Unit, www.eiu.com, consultado el 27 de Julio de 2017.