- Data was worse than expected by all 39 economists surveyed
- Production of capital goods plunges 8.2% as investment falters
Brazil’s 2015 industrial output contracted the most in at least 12 years after an unexpected drop in December that signaled an even deeper fourth quarter contraction for Latin America’s largest economy.
Production shrank 0.7 percent in December, recording its seventh straight monthly decline after a revised 2.3 percent drop in the previous month, the national statistics agency said Tuesday. That was worse than expected by all 39 economists surveyed by Bloomberg, whose median forecast was for output to remain flat. Industry contracted 8.3 percent throughout last year-- the most since the 2003 start of the agency’s data series.
Latin America’s largest economy is sinking into its deepest two-year recession in more than a century. That prompted the central bank to refrain from raising borrowing costs last month and encouraged President Dilma Rousseff to unveil a $21 billion package of stimulus lending to shore up investment and prevent further job losses.
“When you look at implications for investment within GDP in the fourth quarter, we are bound to see another very bad result,” Jankiel Santos, chief economist at investment bank Haitong in Sao Paulo, said by phone. “What we’re seeing is an erosion of our potential GDP.”
The real fell 0.4 percent to 3.9820 per dollar at 10:00 a.m. local time. It weakened 33 percent last year, the most among emerging-market currencies tracked by Bloomberg after the Argentine peso.
Output of capital goods in December, a barometer of investment, fell 8.2 percent from the previous month, the biggest decline in a year, the statistics institute said. Production fell in 13 of the 24 industries surveyed by the institute, including a 8.3 percent drop in machinery and equipment.
The December plunge in capital goods overshadowed the fact that output of the sector’s other two components -- consumer and intermediate goods -- rebounded in the month. That, combined with an upside surprise in manufacturing data Monday, indicates industry may have bottomed out, according to Edward Glossop, an emerging markets economist with London-based Capital Economics.
Investor confidence as measured by the National Industry Confederation, which hit an all-time low in October, rose last month to its highest since August. Industrial capacity utilization also increased in December from an historic low.
“The early signs are that the recession may have eased in the first quarter,” Glossop said by phone from London. “But there’s no getting away from the fact that the release of fourth quarter data is going to be quite grim.”
Brazil’s economy shed more than 1.5 million formal jobs last year, of which more than a million were in the manufacturing and civil construction sectors. Rousseff, of the Workers’ Party, has faced mounting pressure to stem the impact of the downturn.