Industrial output in Brazil rose for a second straight month in May, government data showed on Tuesday, underpinning hopes that the economy will not fall back into recession despite an escalating political crisis. Industrial production rose 0.8 percent in May from April after seasonal adjustments, statistics agency IBGE said. The median estimate in a Reuters poll projected an increase of 0.6 percent, following a rise of 1.1 percent in April.
Production in May grew 4.0 percent from a year earlier, the fastest increase since February 2014. Output grew on a monthly comparison in 17 of the 24 sectors covered by IBGE. Automobile production jumped 9.0 percent, supported by strong exports that also helped Brazil's trade balance record their two largest monthly surpluses on record in May and June.
Brazil's economy is expected to grow 0.4 percent in 2017 after two years of deep recession, according to a weekly central bank poll of economists. Analysts and policymakers have cut their estimates for this year's growth after a graft scandal threatened to topple President Michel Temer's year-long administration. Industrial output, despite its recent improvement, remains 18.5 percent below its June 2013 peak, IBGE said.
"This increase needs to be put into context," IBGE economist Andr? Macedo said. "There is a lot to be done for industry to recover the losses of its recent past." Day earlier report says inflation expectations dropped in Brazil after the government reduced its target for the first time in more than a decade, a survey showed on Monday, suggesting policymakers can cut interest rates this year at an even faster pace than expected without putting the new goals into question.
Market forecasts for the inflation rate in 2020 dropped to 4.00 percent, matching the new official target, from a previous estimate of 4.25 percent, according to the median estimate of about 100 economists surveyed weekly by the central bank. For 2017 and 2018, when Brazil's target remained at the long-held 4.5 percent, economists expect an inflation rate of 3.46 percent and 4.25 percent, respectively, down from a forecast of 3.48 percent and 4.30 percent previously.
Estimates for the 2019 inflation rate remained unchanged at 4.25 percent, the new goal for that year. Well-anchored inflation expectations have helped the central bank cut interest rates to help the economy emerge from its worst recession on record. Policymakers have slashed the benchmark Selic rate by 400 basis points since October, to 10.25 percent, and are expected to cut it further until it reaches 8.25 percent by December, according to the weekly poll.
Until last week, economists had expected the central bank to cut the Selic rate to 8.5 percent this year. Brazil lowered its annual inflation target on Thursday, seeking to turn the page on recent double-digit jumps in consumer prices. Latin American countries such as Mexico and Chile target inflation at 3 percent. Growing investor optimism about Brazil's economic prospects contrasts with an escalating political crisis that threatens to remove President Michel Temer from office.
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