Brazil Industry Continues in Slide

By Lucy Jordan, Contributing Reporter

BRASÍLIA, BRAZIL – Despite a raft of recent stimulus measures, data released last week showed Brazilian industry continuing to perform poorly over recent months, as it reacts to the crisis in Europe and lower global demand for commodity exports. Industrial production shrank in May for the third consecutive month according to data released by the Instituto Brasileiro de Geografia e Estatística (IBGE, Brazilian Institute of Geography and Statistics).

Output declined 0.9 percent from April, and was 4.3 percent lower than May 2011, the largest annual drop since a 7.6 percent fall in September 2009.

Meanwhile, the Confederação Nacional da Indústria (National Confederation of Industry) released figures showing that industry’s utilization of capacity is only 80.7 percent.

This figure, which measures the difference between what industry is able to produce and what it is actually producing, dropped 0.3 percent in May compared to April – the fourth consecutive month it has decreased – which brings it to it its lowest level since September 2009.

“The industry is working with increasing idleness,” said the executive manager of the Economic Policy Unit of the CNI, Flávio Castelo Branco.

Mr. Branco attributed the decline in industrial activity to the international economic crisis. In addition, he said, the high cost of producing in Brazil makes domestic industry less competitive. “The reality is more difficult than anticipated,” he said.

In a further indicator of weak industrial performance, Reuters reported that the HSBC Purchasing Managers’ Index for the Brazilian manufacturing sector fell to 48.5 in June, down from 49.3 in May, after seasonal adjustments. This figure is the lowest since October 2011 and falls below 50, the mark that divides growth from contraction.

These results will worry the government, which, in recent efforts to kick-start growth, has cut taxes, lowered interest rates and introduced stimulus measures.

These have included government purchases of R$8.4 billion to make up for a decrease in private investments, and, as President Dilma Rousseff announced Thursday, R$115 billion in loans for the agriculture sector.

Anthony Mueller, a professor of economics at the Federal University of Sergipe, said by email Friday that sluggish industrial activity was a symptom of more serious problems with infrastructure, high taxes, bureaucracy and levels of education. “The Brazilian economy suffers from too many bottlenecks,” he said, and “too much state interventionism.”

After experiencing consistent growth over the past decade, Brazil’s economic growth dropped from 7.5 percent in 2010 to just 2.7 percent in 2011, the lowest of the BRICS nations. It recorded just 0.2 percent of growth in the first quarter of 2012.

In June, Brazil’s central bank cut its 2012 growth forecast to 2.5 percent, and analysts say growth could slow further. Other data released Friday from IBGE showed that inflation in June was at its lowest monthly rate since August 2010.

The IPCA inflation rate was 0.08 percent, compared to 0.36 percent in May, lower than forecasts had anticipated. Lower inflation will give Brazil’s central bank scope to further reduce interest rates, to try and boost more spending.