Why the Brazil PMI confirms a downward spiral (Part 1)

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

The latest Brazilian PMI (purchasing managers index) confirmed the weakness in the economy. The headline index fell below the 50 point neutral growth line, posting a steep drop to 48.5 from 50.4 in June.

HSBC Brazil August 2013 Manufacturing PMI 2013-08-12Enlarge Graph

PMIs are useful indicators of a country’s economic health. Brazil (EWZ) has a very large industrial sector, and its rich resources drive both its manufacturing sector and its exports. So Brazil’s PMI is a great way to gauge the direction its economy will take.

The July PMI is now at a 13-month low, sending a strong signal to investors after crossing the 50 point line.

Andre Loes, HSBC’s chief economist for Brazil, stated:

“The July HSBC Brazil PMI shows that economic activity in the manufacturing sector contracted for the first time since September 2012. The headline index fell from 50.4 in June to 48.5 in July, with output, new orders and export orders all below the 50 water-line. The loss of momentum observed in recent months evolved into an actual weakening of economic conditions, with negative implications for the next quarters.”

Analysis

In this series, we’ll discuss details on the areas of weakness.

Continue to Part 2: Production and new orders