Brazilian industrial production increased 0.75% to 119.2 (2002=100) in September from 118.3 in August, a little short of expectations, but still on the upward trend that began in January. The three major marketing groups--capital goods, intermediate goods and consumer goods--have all recovered from their falls in December as can be seen in the first chart. The decline in capital goods was especially severe and the recovery equally sharp.

Industrial production is a good proxy for Brazilian GDP. Brazil reports real GDP on an index basis with 1995=100. We rebased the Industrial production index to 1995=100 and aggregated the monthly figures to quarterly. The second chart compares this index with the index of real GDP. The correlation between the two series is strong at .97. In the third quarter, industrial production increased 4.1%. A 3.9% increase in industrial production was associated with a 1.9% increase in real GDP. If the relationship between industrial production and real GDP holds, Brazil's real GDP should show another roughly 2% rise in GDP in the third quarter.