Brazil’s purchasing managers’ index rises to highest level in five months in July

The Purchasing Managers’ Index (PMI) of Brazil’s industrial sector rose from 46.6 in June to 47.8 in July, marking its highest level in five months, according to a report by S&P Global on Tuesday (1).

However, this marked the ninth consecutive month the PMI remained below the 50.0 threshold, which demarcates expansion from contraction.

S&P Global reported that the Brazilian industrial economy’s performance continued to be curtailed by contracting demand, leading to further reductions in production schedules, employment, and purchasing levels.

The report also noted a global downturn in demand for raw materials and a lack of supply chain pressure led to the sharpest fall in input costs seen in 17 and a half years of data collection.

Motivated by cost-saving measures and rising sales, firms cut selling prices to the highest level since June 2009.

Pollyanna De Lima, associate director of economics at S&P Global Market Intelligence, stated that the July PMI results for Brazil’s industrial sector hold significant implications for the country’s economic performance, labor market, and interest rates.

The protracted weakening of demand, constraining factory orders and production, indicates a reduced contribution from the sector to Brazil’s GDP in Q2 and Q3 2023.

In terms of labor market, the subdued state of the industrial sector translates into fewer job opportunities and diminished employment prospects.

Given the industrial sector’s state, record-breaking decreases in input costs reported by the survey, and the sharpest decline in final goods prices since 2009, De Lima suggested that the Central Bank could expedite its decision to cut interest rates.

Lowering the benchmark rate could stimulate household spending and corporate investment, potentially aiding the economy and helping the industry emerge from its current crisis.

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