In a recent note to clients, Neil Shearing from London-based research firm Capital Economics wrote that manufacturing output in Brazil is now back to where it was in 2007. Here are some of his comments:

“The modest increase in industrial output in June does not alter the fact that Brazil’s economy and its manufacturers in particular are still struggling. Further stimulus measures seem likely over the coming weeks, but with Brazil’s problems driven as much by constraints on the supply side as by weaker demand, these are likely to be less effective reviving growth than in the past.

[According to Chart 1], Brazilian manufacturing has experienced a lost half-decade.

The relationship between the PMI survey and the actual production data is not all that strong. (See Chart 2.) But at these levels, the PMI seems to point to further falls in industrial output of around 0.2% m/m or so over the coming months.

It is not clear that the problems facing Brazilian industry have been driven solely by weaker demand…  hopes for a rapid rebound in growth similar to that seen after the 2009 recession look misplaced.

Source: Capital Economics

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