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Brazil Industry Output Falls Second Time in Three Months

Jan. 4 (Bloomberg) -- Brazil’s industrial production fell in November for the second time in three months, as Latin America’s biggest economy struggles to emerge from a slowdown that has lasted more than a year.

Industrial output declined 0.6 percent in November, the national statistics agency said today in Rio de Janeiro, after rising 0.14 percent in October. The October number was revised downward from the previous reading of 0.9 percent. Economists had expected output to slide 0.9 percent in November from the previous month, according to the median forecast in a Bloomberg survey of 36 analysts.

“The number was a little better than what people expected, but the downward revision of the prior months shows the scenario is still bad,” Newton Rosa, chief economist at SulAmerica Investimentos, said by telephone from Sao Paulo. “Industrial activity remains stagnated and there is no sign of recovery.”

Output fell 1 percent from the year before, compared with a median forecast for a 0.7 percent decrease from 33 economists surveyed by Bloomberg.

President Dilma Rousseff’s government has worked to reactivate Brazil’s industry by cutting payroll taxes, lowering levies on consumer and industrial goods and pressuring commercial banks to reduce lending costs. Meanwhile, since August 2011 the central bank has cut the benchmark interest rate by 525 basis points, more than any other Group of 20 nation, to a record low 7.25 percent.

Weaker Real

The administration has also enacted measures to weaken the real, which has declined 10.5 percent against the dollar in the past year, the second-weakest performance among 16 major currencies tracked by Bloomberg.

Still, Brazil’s economy is estimated to have grown 0.98 percent in 2012, according to the latest central bank survey of about 100 economists, less than the U.S. and its peers in the BRIC group that includes Russia, India and China. The economy grew 2.7 percent in 2011 and 7.5 percent in 2010.

Confidence in the industrial sector fell in December, according to a survey by Brazil’s national industry confederation, CNI.

Vehicle Production

Brazil’s vehicle production in November fell 2.8 percent from the month before, the agency said.

All 1,500 workers at Daimler AG’s Mercedes-Benz bus and truck plant who were granted furloughs in June due to slackening demand will return to work in January, the ABC metalworkers’ union said in a statement last month. The factory’s second shift will be reactivated in February due to a 15 percent increase in production.

“It was a lost year” for industry, David Beker, chief Brazil economist for Bank of America Merrill Lynch, said in a telephone interview on Jan. 3. “It was very disappointing, particularly given the amount of stimulus that was put in place.”

Brazil’s growth potential is declining, which won’t change unless there is a pickup in investment, Beker said. Investment fell for five straight quarters to 18.9 percent of gross domestic product in the third quarter, compared with 29.4 percent in Peru.

Production of capital goods slid 1.1 percent in November from the month before and 10.3 percent on an annual basis, showing industry is dependent on government stimulus and that confidence is not returning to the sector, Luciano Rostagno, chief strategist at Banco WestLB do Brasil SA, said by phone from Sao Paulo.

Of the 27 industrial sectors studied by the statistics agency, 16 registered a decline.

Swap rates on the contract maturing in January 2017, the most traded in Sao Paulo today, rose eight basis points to 8.5 percent at 10:01 a.m. local time. The real was little changed at 2.0451 per U.S. dollar.

To contact the reporter on this story: David Biller in Rio de Janeiro at dbiller1@bloomberg.net.

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net.

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