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Brazil’s Industry Back on the Rise in May but Pressures Persist

Industrial output in Brazil returned to positive territory in May, statistics agency IBGE said on Tuesday, though not enough to fully offset losses seen a month earlier as the sector continues to grapple with high borrowing rates.

In Latin America’s largest economy, production rose 0.3% in May from April, IBGE said, a reading that matches the median estimate in a Reuters poll of economists.

“The month-on-month rise only partly reverses April’s 0.6% decline and suggests that industry remained weak over the course of the second quarter,” Capital Economics’ chief emerging markets economist William Jackson said in a note to clients.

At the margin, he added, that would strengthen the convictions of the more dovish members of the central bank’s monetary policy committee (COPOM), who are inclined to vote to lower interest rates at their next meeting in early August.

Rates are currently at a cycle-high of 13.75%, with the bank hinting cuts might come as soon as August if the inflation scenario continues to improve.

Over the first five months of the year, Brazil’s industry was still down 0.4%, underscoring its uneven results. Output in May also remained below pre-pandemic levels.

Still, the monthly increase in industrial production came on the back of rising capital and durable goods output, according to IBGE, which said 19 of the 25 areas surveyed posted positive figures in the period.

The forecast for the rest of the year also looks stronger than the first half.

“The trend in industrial production growth is now upwards, and we expect conditions to improve further over the second half of the year as the COPOM starts cutting interest rates,” said Pantheon Macroeconomics’ Andres Abadia.

“But downside risks persist, at least in the very near term.”

Production in May, IBGE noted, grew 1.9% from a year earlier.

Source : Yahoo