Tuesday, 3 February 2009

Brazil Recession Started in Fourth Quarter, Part XXXIII

The Brazilian government said this morning that, in December, industrial production declined 12.4 percent on a month-on-month, seasonally-adjusted basis. The drop on a year-on-year basis was a worse-than-expected 14.5 percent! Both figures came much worse than estimates by economists in surveys carried out by Agência Estado, Bloomberg and Reuters. According to the statistics agency, known as IBGE, December's drop was the worst industrial production result on a monthly basis on record (data started to be compiled around 1991.)

According to a couple of economists who distributed their views on the data just after the release, the December industrial production data is likely to set the scenario for another interest-rate reduction of at least 100 basis points in the Selic rate target on March 10-11. Durable goods posted the worst performance, with credit-sensitive industries still showing the most dismal performance since the crisis broke out at the start of September. On the other hand, non-durable goods are outperforming other categories, signaling that people are paying right away for their purchases and giving up on credit. Retailers such as Grupo Pão de Açucar and Lojas Americanas SA as well as clothing companies Marisa and Coteminas may profit from this situation (hey! remember that consumption is falling but a slower pace in these sectors than at credit-dependent ones like durable goods) at the expense of Casas Bahía, Ponto Frío and other home appliance makers.

This morning we mentioned in another posting that Morgan Stanley is predicting further central bank policy front-loading, with the Selic ending the year below 10 percent. This output number is lending further strength to that hypothesis -- that about policymakers being very aggressive to reducing rates to stave off the recession.

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