Brazilian Manufacturing Remained Contracted in January
Global Manufacturing Remained Subdued at the Start of 2016
Brazil’s manufacturing PMI increased to 47.4 in January
Brazil accounts for about 2.1% of the world’s gross domestic product (or GDP), and manufacturing activity accounts for ~11% of the country’s GDP.
According to Markit, Brazil’s manufacturing PMI (or purchasing managers’ index) rose by 1.8 points to 47.4 in January, compared to 45.6 in December.
Although Brazilian manufacturing rose in January, its reading is still below the neutral level of 50. As a result, the iShares MSCI Brazil Capped ETF (EWZ) fell 0.30% over the past month as of February 1, 2016. EWZ has fallen 44.3% from a year ago, making it one of the worst-performing ETFs in the emerging economies (EEM).
Banco Bradesco (BBD), Brasilagro Companhia Brasileira de Propriedades Agrícolas (LND), Banco Santander (BSBR), and Vale (VALE) fell by 0.63%, 17.7%, 10.4%, and 25.0%, respectively, over the past month as of February 1.
Production and new orders fell more slowly in January
After touching an 80-month low in November 2015, Brazilian manufacturing saw a slower rate of production and new orders. The slowdown was seen in all three monitored market groups—consumer, intermediate, and investment goods—in January.
Due to the country’s fragile economic condition, domestic demand continued to contract in January. Conversely, the weak Brazilian real helped the country’s manufacturers to secure external clients. Export orders expanded for the second straight month in January.
Employment and inventories fell in January
With lower demand books, manufacturers in Brazil continued to shed jobs in January. Job cuts were recorded across the consumer, intermediate, and investment goods sectors. Lower orderbooks led to a decrease in purchasing activity by manufacturers.
Weak real pushed cost inflation up
While orderbooks in Brazil decreased, cost inflation pressures remained high. The depreciating Brazilian real led to a rise in the cost of imported raw materials. Due to high cost inflation, selling prices also rose in January.
Falling orderbooks and high inflation are adversely affecting Brazil’s manufacturers. 2016 will likely be a year of challenges for the country’s economy.
Turning from the struggling Brazilian economy, let’s take a look at Russian manufacturing activity in the next article.
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