Macroeconomic Forecast Brazil

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Brazilian industrial output continued to contract on a year-on-year (y-o-y) basis for the seventh month running in May, falling by 11.3%, and 9.9% seasonally adjusted. Although still distinctly negative, the rate of contraction marks an improvement on the April figure (-12.2% y-o-y seasonally adjusted), and the peak contraction of 15.7% y-o-y in December 2008. This underpins our view that the rapid rate of deterioration in the Brazilian economy has peaked in at the early stages of 2009, and is already starting to show signs of early improvement. Although the economy may have bottomed out, we caution against premature optimism, as industrial output remains in firmly negative territory.