Brazilian Industry Is Recovering But at a Slowing Rate

08/30/2016 - 11h50

Industry was the first sector to feel the impact of the recession and should also be the first to emerge from it.

Analysts believe that industrial production demonstrated strong recovery in the second quarter of this year and should repeat this performance in the third, although at a slower rate.

The recovery is being led by the production of capital goods, above all equipment for industrial transportation. Comparing June of this year with June of last year, the indicator showed an increase of 11,3% according to IBGE.

Any improvement in this segment, which is directly tied to investments in productive capacity, is a leading indicator for expectations of wider recovery in the coming months.

The food, electronics, beverages and shoe industries also showed significant improvements, according to Rodolfo Margato, an economist at Santander Bank.

The same hasn't taken place in heavier supply chains, like the automotive industry, which is still operating with a high level of idle capacity.

The engines of production recovery so far have consisted of a rebuilding of stocks back to normal levels, and an increase in exportation and import substitution, according to Aloisio Campelo, a researcher from the Getúlio Vargas Foundation.

Sustainable growth, however, depends on recovery and growth of internal demand, which is happening at a slower pace than businesses had expected, Campelo said.

Another negative factor is the appreciation of the real against the dollar, which makes exports more expensive.

These factors should slow the increase in production in the coming months, after the accelerated phase observed in the last quarter. On Wednesday (the 31st) IBGE will release statistics on second quarter growth in GDP (Gross Domestic Product).

Translated by LLOYD HARDER

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