Brazil’s second quarter economic data indicates that the economic activity
continues to shrink at a rapid pace in annual terms, albeit it recorded its most
solid sequential growth in June since the end of 2014. The growth was mostly
driven by the sequential gain in industrial production this year, thanks to a
weaker BRL and rebounded exports, said Societe Generale in a research
note.
With the currency rebounding back in the past few months and the
trade data worsening again in June and July, industrial output growth in July
deteriorated a bit following the improvement witnessed in the second
quarter.
Accordingly, economic activity in Brazil is likely to have
remained flat on a sequential basis; however, it is expected to have shrunk 3.6
percent year-on-year in July, weaker than June’s rate, stated Societe Generale.
Keeping the recent movements apart, the Brazilian economy is nearer to bottoming
out and would possibly expand next year if sentiment continues to
improve.
“We recently upgraded our 2016 and 2017 growth forecasts to
-3.3 percent and 0.3 percent from -4.1 percent and -0.9 percent respectively
following the quarterly investment gain in 2Q”, added Societe
Generale.
However, the economy continues to be fragile given the
subdued fiscal prospects, worsening labor market and challenging external demand
situation. A solid investment rebound is unlikely in this scenario and thus
there remain significant downside risks to the growth outlook in the near term,
according to Societe Generale.