Brazil December Industrial Output Was Higher Than Forecast

Brazil’s industrial production was unchanged in December from a month earlier, surprising analysts who expected output to contract for a second straight month.

Industrial output was flat after contracting a revised 1.3 percent in November, the national statistics agency said today in Rio de Janeiro. The median forecast of 29 analysts surveyed by Bloomberg was for production to decline 0.4 percent.

President Dilma Rousseff cut payroll taxes, lowered levies on industrial goods, and kept borrowing costs at record lows in an effort to boost industrial output that contracted 2.7 percent last year, according to the government. Last month, she reduced electricity prices for manufacturers by as much as 32 percent to lower production costs and revert a drop in investments that is holding back economic growth even as domestic demand grows.

“There’s nothing here to celebrate at all, in spite of coming in higher than expected” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento SA, said by telephone from Sao Paulo. “Except for non-durable consumer goods, all other categories presented a drop. This very widespread low performance is really weighing on the economy.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, rose 5 basis points, or 0.05 percentage point, to 8 percent at 10:00 a.m. local time. The real strengthened 0.13 percent to 1.9889 per U.S. dollar.

Limits to Growth

Brazil’s central bank, after reducing interest rates to a record 7.25 percent, said last month additional monetary stimulus will fail to boost economic growth that is recovering more slowly than expected due to limited supply.

Rousseff said last year the government will sell licenses to build and operate 17,500 kilometers of roads and railways with as much as 133 billion reais in investment. Brazil also plans to sell rights to operate five ports that will require as much as 54.2 billion reais in investment.

“We don’t have the right ports, we don’t have the right airports and we don’t have the right roads,” Paulo Sergio Dortas, managing partner for consultancy Grant Thornton Brasil, said by phone from Sao Paulo. “I don’t see for this year that industry will be able to overcome such difficulties.”

The central bank forecasts the economy grew 1 percent last year, less than the U.S. and its peers in the BRIC group that includes Russia, India and China. Economists surveyed by the central bank are forecasting growth of 3.10 percent this year, and 3.65 percent in 2014.

Weaker Real

The government also introduced capital controls last year to weaken the currency in a bid to help exporters. The real declined 9 percent against the dollar in 2012, the weakest performance after the yen among 16 major currencies tracked by Bloomberg.

The weaker currency has fueled inflation, which quickened to 6.02 percent in the 12 months through mid-January, the fastest in a year. Since the beginning of the year, the real has gained 3.3 percent as trader bet the central bank will allow the currency to strengthen in a bid to tame consumer prices.

Semi-durable and non-durable consumer goods rose 0.9 percent in the month, while the three other main categories tracked by the statistics agency contracted. Capital goods production, an indicator of investment, fell 0.8 percent. The output of durable goods and intermediate goods dropped 0.5 percent and 0.1 percent.

“If the government makes any movement in the exchange rate in order to control inflation, industry will be very disappointed because all the exports will be more expensive,” Dortas said. “It’s a tough time for the Brazilian government.”