Brazil Industry Upbeat on 2013 Prospects

By Ben Tavener, Senior Contributing Reporter

SÃO PAULO, BRAZIL – After a gloomy 2012 in which the Brazilian economy all but ground to a halt, a cautiously optimistic sense is returning to some sectors of Brazilian industry, fueled by better-than-expected results and growing demand in January. Market analysts surveyed by the Banco Central (Central Bank) are also reporting positive economic signs and have revised up GDP growth projections for 2013 to 3.1 percent; industry production is also expected to increase by 3.1 percent this year.

Most businesses still believe it is premature to speak of a return to strong growth, but given January is normally one of the worst months in the year, they are quietly optimistic for 2013 after sales and production levels in January came in above target.

Carlos Loureiro, President of Brazil’s National Institute of Steel Distributors, told Valor business edition that 2013 has seen a “stronger-than-usual start” and that “the general consensus is that the market is starting to grow,” with sales up 3.4 percent in January year-on-year.

Aluminum manufacturers have also been buoyed by surprisingly good results, after demand in January was up 5.9 percent on last year: they say adjustments in the price of the Brazilian real against the dollar have helped with this.

The real was held just above the US$2 mark for much of 2012, but since the start of the year it has moved towards US$1.95 and officials have signaled they will allow limited strengthening to help contain inflation: the impact on industry has yet to be quantified.

The construction sector is also said to be showing signs of a modest recovery, according to market sources, which are also upbeat about the prospects for the heavy vehicles industry over the coming year: some companies’ sales slumped forty percent in 2012 but it is hoped businesses might renew their fleets this year as credit becomes more available.

A survey of Brazilian electronics manufacturers has also given cause for cautious celebration: 56 percent said they were experiencing high sales compared to the same month in 2012, Valor revealed.

Some economists and market analysts say stimulus measures adopted by President Dilma Rousseff’s government over the past year – reduced interest rates, currency adjustments and multi-million-dollar infrastructure projects – appear finally to have percolated through the economy and started bearing fruit.

However, Antony Mueller, professor of economics at the Federal University of Sergipe, tells The Rio Times he does not believe any upturn in the economy is likely to last, and that stimulus measures taken by the current government are only a short-term fix.

“It is only a matter of time until these policies show up in higher inflation and growth will weaken again. The very policies that now stimulate more production will lead to weak economic growth and higher inflation later on.”

Prof. Mueller says fundamental reforms in economic policy are required to overcome what he calls, “mindless stimulus policies which bring only illusionary respite in the short run,” including tangible improvements to infrastructure and the education system, and more liberal labor laws. He says the public service system should be streamlined and “absurd” privileges eradicated.

While unemployment in Brazil stands at a ten-year low of 5.4 percent, reports from the Ministry of Labor and Employment (MTE) have also tempered the good news: year-on-year, over 75 percent fewer new jobs were created in January 2013, the lowest number since 2009 – the height of the international economic crisis. Just 28,900 net new posts were created in January, well below the month’s target of 118,800. The government has admitted the 2013 target of 1.8 million net new jobs might now be optimistic.