June 1 (Bloomberg) -- Brazilian industrial output rose for a fourth straight month in April as the economy starts to recover from its sharpest economic contraction on record.

Production climbed 1.1 percent in April from the previous month when adjusted for seasonal factors, up from a revised 0.9 percent gain in March, the statistics agency said. Economists expected a 0.8 percent gain, according to the median of 26 forecasts compiled by Bloomberg.

“The economy is recovering slowly,” said Roberto Padovani, the chief economist at Banco WestLB in Sao Paulo. “We are no longer seeing companies cut production to adjust inventories to slower economic growth.”

Latin America’s biggest economy, which probably slipped into recession in the past two quarters, is rebounding as demand picks up for exports and consumer goods. Electrical equipment maker Weg SA dropped plans to cut working hours last month after home-appliance sales rose, while automakers have nearly tripled output since slashing production to a nine-year low in December.

The first global recession since World War II prompted Brazilian companies to cut inventories by scaling back production. Companies fired a record number of employees in December as gross domestic product dropped 3.6 percent in the last quarter of 2008 from the previous three months, the biggest contraction since the series began in 1996. April’s industrial output fell 14.8 percent from the year-ago month.

Pace of Cuts

Brazil’s central bank has cut the benchmark interest rate to a record 10.25 percent and is likely to reduce the so-called Selic rate another 0.75 percentage point next week, according to the median forecast in a central bank survey published today.

The industrial output report is another sign that the economy is recovering, reducing the need for the central bank to continue aggressively cutting rates, said Jankiel Santos, chief economist at Banco Espirito Santo de Investimentos.

“Today’s activity figures should contribute to a new slowdown in the monetary easing pace in the next week’s Copom meeting,” Santos wrote in an e-mailed note to clients.

Policy makers cut the so-called Selic rate by at least a percentage point at the three meetings held this year.

President Luiz Inacio Lula Silva’s administration has also cut taxes on cars, home appliances, and construction material and pledged to sustain public spending to revive the economy.

Brazil has a “healthy” level of demand, Sergio Marchionne, Fiat SpA’s Chief Executive Officer, told reporters last week in Montreal.

Companies hired enough workers from February to April to offset a plunge in employment in January.

Annual Contraction

Still, Brazil’s $1.3 trillion economy isn’t rebounding fast enough to avoid its first annual economic contraction since 1992, Padovani said.

Brazilian economists expect Latin America’s biggest economy to shrink 0.73 percent this year, the biggest contraction in 19 years, according to the median forecast in a May 29 central bank survey published today.

Brazil’s trade surplus fell 28.6 percent in May to $2.65 billion after a drop in exports, the Trade Ministry said. Exports fell 2.7 percent to $12 billion, after rising in March and April.

The real surged 1.4 percent to 1.9420 per dollar at 2:10 p.m. New York time from 1.9702 on May 29.

To contact the reporter on this story: Andre Soliani in Brasilia at asoliani@bloomberg.net; Iuri Dantas in Brasilia at at idantas@bloomberg.net

Last Updated: June 1, 2009 14:12 EDT