Macroeconomic Forecast Brazil

Industrial production in Brazil broke a two-month spell of negative month-on-month (m-o-m) growth in January, rising by 1.1% m-o-m. Though slightly lower than the staggering 18.5% year-on-year (y-o-y) reading seen in December, the low base set at the start of 2009 has helped to lift industrial output growth to a rate of 16.3% y-o-y in January. This chimes with recent increases in the rate of industrial capacity utilisation in the economy, suggesting to us that Brazil's output gap continues to narrow. Though still some way off the levels seen in the pre-recession period in 2008, we expect the January industrial production reading to give the central bank further food for thought to. We continue to see 250 basis points of hikes this year to 11.25%.

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