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Just When You Thought It Couldn't Get Worse For Brazil...

Brazil’s economy is incredible.

Just when you’re sure - and we mean sure - that it can’t possibly get any worse, or at least not materially worse in the very short-term, something else happens to further underscore the deep, dark economic malaise plaguing one of the world’s most important emerging markets. 

So after last Friday’s GDP print which confirmed that the country slid into recession during Q2 - a quarter in which Brazilians suffered through the worst inflation-growth outcome in at least a decade - and after July’s budget data which confirmed that the country’s fiscal situation is, as Citi put it, “a bloody terror film,” we got a look at industrial production today and boy, oh boy was it bad. So bad in fact, that it missed even the lowest analyst expectations.

Here are some key excerpts from Goldman's breakdown:

Sharp Decline in Industrial Production in July

 

IP contracted by a much larger than expected -1.5% mom sa (-8.9% yoy) in July (vs. the -0.1% mom sa market consensus). Furthermore, the June print was revised down to -0.9% mom sa from the original -0.3% mom sa. During the last nine months industrial production declined at an average monthly rate of -0.9% mom sa. Of the 24 main industrial segments, 14 recorded a contraction of output in July.

IP declined 8.9% yoy in July, with the largest decline recorded in capital goods -27.8%. Overall, IP declined 6.6% yoy during January-July 2015.

 

IP has now contracted for eight consecutive quarters and is likely to decline again during 3Q2015.

In July, IP was 14.1% below the peak level registered in June 2013 and was at the same level as March-April 2006.

 

The industrial sector (which has been reducing headcount) contracted 1.1% in 2014 and we expect it to contract at a much higher rate in 2015 as it continues to face strong headwinds from high levels of inventories, record low confidence indicators, a high and rising tax burden, rising energy costs, and weak external demand (particularly from Argentina for durable goods). 

Meanwhile, exports cratered 24% and critically, it wasn't all because of lower commodity prices.

CDS now at six-year wides...