Brazil: Investment resumes advance in November

We outline a gross fixed capital formation monthly series

• In this report, we outline a gross fixed capital formation monthly series based on data from the Monthly Survey of Industry – Physical Production (PIM-IBGE) and the trade balance (Funcex).

• The resulting series shows a close quarterly correlation with gross fixed capital formation of the national accounts and can be used to forecast the series published by IBGE.

• The monthly investment proxy rose 1.2% in November mom/sa, with the three-month moving average also posting growth.

Construction of the monthly investment series

Table 1 shows the breakdown of gross fixed capital formation (GFCF) by the 2015 national accounts.

• Civil constructionaccounts for 53% of GFCF, of which 25% correspond to residential construction and 28% correspond to other buildings and structures (ports, roads, warehouses, etc.).

• The acquisition of machinery and equipment accounts for 34% of GFCF.

• The remaining 13% involve R&D, acquisition of software and other fixed assets.

In order to estimate the gross fixed capital formation (demand indicator), we can use production data, provided that we take into account the following relation:

Current demand = Production–Inventory changes + Imports-Exports

The IBGE’s monthly physical production survey provides two important indicators of production: 1) the production of capital goods and 2) the production of typical civil construction inputs, covering the two components with the largest participation in GFCF.

The production of typical civil construction inputs serves as an indicator of demand related to construction. Although there are no adequate indicators for inventory change, or imports or exports of such inputs, we estimate that their role is very small relative to domestic production.

The production of capital goods serves as an indicator of demand related to machinery and equipment. The estimate of the sector’s demand is complemented by the inclusion of the 3) imports and 4) exports of capital goods monthly series produced by Funcex.

We note that there are limitations to the use of these four factors for the calculation of monthly GFCF. None of the factors involves GFCF related to R&D, acquisition of software or other fixed assets. Moreover, none of the variables measures oscillations in the pattern of inventory changes related to each of the components.

In view of such limitations, the weighting of the four factors for the estimation of monthly GFCF is not based on the weights indicated in table 1. Instead, the series is weighted based on the coefficients of quarterly econometric models (see Technical Note).


The resulting series shows quarterly correlation of 82% with the gross capital formation of GDP[1]. Therefore, it can be used to forecast the quarterly series of the National Accounts.

Performance in 2017

The series indicates that the resumption of investment started in the first quarter of 2017. However, the initial improvement lost strength in March and April, generating an unfavorable carry-over for the second quarter of the year, when the indicator fell again.

In the third quarter, both the production of civil construction inputs and capital goods showed positive results (growth of 1.8% and 4.5%, respectively). Thus, our monthly proxy increased 2.3% in the period, close to the 1.6% indicated by the IBGE series.

After five consecutive months of expansion, the monthly GFCF fell again in October (-1.7%), mainly due to a decline in production of construction inputs during the month.


In November, the indicator advanced by 1.2% mom/sa, partially offsetting the previous month’s decline; the three-month moving average increased slightly (0.2%). In comparison with the same month last year, the indicator grew by 6.7%.

With lower interest rates and exchange rate appreciation, corporate leverage subsided. This, combined with a favorable external environment for emerging economies, allowed companies to gradually resume investment in 2017. Looking ahead, we forecast that GFCF will maintain its growth trend, consistent with the gradual recovery of Brazilian economic activity.


Artur Manoel Passos
Alexandre Gomes da Cunha


Annex 1: Technical Note

The proxy is a monthly indicator of the level of investment in Brazil. The indicator is built from four series: Production of typical civil construction inputs (PIM-IBGE), production of capital goods (PIM-IBGE), Imports of capital goods (Funcex) and Exports of capital goods (Funcex).

Based on quarterly econometric models, we obtain the elasticity of the Gross Fixed Capital Formation of the National Accounts in relation to each component. The components are then re-weighted based on these elasticities, creating the monthly investment series.

Since it has a close correlation with the quarterly Gross Fixed Capital Formation (National Accounts System – Reference 2010 – IBGE), the monthly investment series can be used as a source for forecasting the IBGE series.

The series is then seasonally adjusted by the X-13 ARIMA-SEATS (U.S. Census Bureau) method. The seasonal adjustment specifications are similar (except for the frequency differences) to those used by the IBGE for quarterly GDP de-seasonalization.

It is worth mentioning that although the quarterly average of the monthly GFCF proxy is close to the one published by IBGE in the National Accounts, the proxy is not a monthly reading of the latter, so that the quarterly variation of the monthly GFCF will not necessarily be equal to the quarterly variation of the GFCF National Accounts.


[1] The comparison involves the quarterly variation of the two seasonally adjusted series.

Fuente: ITAU

Leer más Informes de: