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Why the Brazil PMI confirms a downward spiral (Part 2)

Sr Emerging Markets Analyst

Continued from Part 1

The latest PMI placed Brazil under the 50 point line, signaling contraction

Out of the five key sub-indices making up Brazil’s (EWZ) PMI, five posted drops.

Production and orders down

After ten months in expansionary territory, the output index fell below the 50 point line. The consumer goods segment, though, posted an increase, but it was offset by the investment and intermediate goods segments.

New orders were depressed due to weakness in the domestic market and the continued fragile export market. The drop was the steepest since October 2011.

Exports have decreased four months in a row, confirming the lack of recovery in trade with key global partners. The drop in Chinese demand and continued soft conditions in Europe have eroded trade.

(Read more: How investing in emerging markets differs from developed markets)

Employment weakening

In line with the weakness in the Brazilian labor market, the employment sub-index posted further contraction. The rate of job shedding posted a yearly high.

The extra slack in capacity worked down the backlog of business. The reduction in this sub-index was the fifth in row—but the rate of depletion was marginal.

(Read more: Why recession in Brazil is not imminent, but the short term will hurt)

Continue to Part 3: Inventory and inflation

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