Brazil & Southern Cone - August 2011 (ISSN 1741-4431)

The economy barely seems to be slowing down. In June year-on-year growth in industrial output was 3.5% (or 2.6%, if the refinery and the UPM pulp mill are excluded). Although this is a fall on May, when industrial output rose 5% year-on-year, taking the second quarter as a whole industrial output was around 4.2% higher than in the same period of 2010 (again excluding the refinery and UPM, which are by far the biggest industrial units in the country and thus have a disproportionate effect on the index as a whole). Quarter-on-quarter industrial growth was 1%, pretty much in line with the annual figure.

Some of the country’s export industries are running into little local difficulties, while others are booking. Meatpackers are suffering from the lack of meat, the result of a drought 18 months ago, which prompted farmers to send stock to slaughter early. Another problem is the financial difficulties of a big textile company, Paylana, which is looking for foreign investors (probably from the US and Argentina) to bail it out. Paylana’s problems have had a major effect on textile exports. These two problems have been offset by strong performances in the dairy sector, led by Conaprole, and the rice industry, which is benefiting from this year’s record harvest.

Consumer demand looks robust, with imports of consumer goods still rising at a 20% annual clip, while household credit demand also remains strong. Clear evidence of this is the strong demand for new cars. In the second quarter of 2011, sales of new cars (all imported) rose 32%, bringing total sales in the first half of 2011 to 23,800 units. In all likelihood this year will set a new record for new car sales. Local economists estimated second quarter growth at 1.5%, quarter-on-quarter, which points to overall GDP growth for the year of about 6%.

Inflation: In July consumer prices rose by 0.75%, more than twice the monthly rate of the three previous months, bringing the annual rate to 8.3%.