Brazil March Industrial Output Rebound Smaller Than Forecast

Brazil’s industrial production rebounded less than economists forecast in March as the world’s second-biggest emerging market continues to respond slowly to government stimulus measures.

Industrial output rose 0.7 percent in March after falling a revised 2.4 percent in February, the national statistics agency said today in Rio de Janeiro. The March number was lower than all but one estimate from 33 analysts surveyed by Bloomberg, whose median forecast was for a 1.3 percent jump. Production contracted 3.3 percent from the year before, the biggest drop since December 2012, compared with a median forecast for a 2.4 percent fall from 30 economists.

President Dilma Rousseff’s administration has worked to revive Brazilian industry by extending tax reductions and cutting electricity tariffs in a bid to spur economic recovery. Accelerating inflation prompted the central bank last month to raise its benchmark rate for the first time since July 2011, to 7.50 percent, after keeping it at a record low since October. While industry’s rebound remains modest, the bank has no choice but to keep raising rates, said David Beker, chief Brazil economist at Bank of America Merrill Lynch.

“Even with weak activity in the domestic sector, the focus for the central bank will probably continue to be more on inflation, since it’s still above the target ceiling,” Beker said. “It’s too early to discuss a shorter cycle.”

Faster Inflation

Inflation as measured by the IPCA-15 index quickened to 6.51 percent in the 12 months through mid-April, exceeding the government’s target range of 4.5 percent plus or minus two percentage points. Brazil’s economy grew 0.9 percent last year, less than the U.S. and its peers in the BRIC group that includes Russia, India and China.

Economists in the most recent survey by the central bank forecast growth of 3 percent this year and inflation of 5.71 percent. Brazil will release first-quarter GDP data on May 29.

Swap rates on the contract maturing in January 2014, the most traded in Sao Paulo today, rose four basis points, or 0.04 percentage point, to 8.23 percent at 11:06 a.m. local time. The real strengthened 0.1 percent to 2.0078 per U.S. dollar.

Industrial output in March fell in 14 out of 27 industrial groups, including a 5 percent drop in transport equipment and 4.4 percent decline in metal products, the statistics agency said.

“We should see the number today as pointing toward a moderate recovery,” Roberto Padovani, chief economist at Votorantim CTVM Ltda, said by telephone from Sao Paulo. “We do have a recovery, but it’s weak.”

Vehicle Output

Vehicle production, which last month fell the most since January 2012, rose 5.1 percent in March from February. Still, the health of the auto industry remains reliant on tax cuts that have been in place since last May, according to Luciano Rostagno, chief strategist at Banco WestLB do Brasil.

“We are concentrating growth in one quarter and will probably will see weaker expansion over the next quarters,” Rostagno said by telephone on May 2. “Growth still depends a lot on government stimulus. The auto sector is a good example.”

Brazil’s car sales in April rose 18 percent from March to 316,631 units, according to preliminary data from Brazil’s car dealership association Fenabrave released yesterday.

One highlight in March was the 0.7 percent increase in capital goods output, the third straight positive reading, according to Thais Zara, an economist at Rosenberg & Associates Inc. in Sao Paulo. In January, capital goods production leaped 9.2 percent.

“Given the January high, the fact that capital goods didn’t decline afterward is encouraging,” Zara said by telephone from Sao Paulo. “Even though industrial production disappointed, it was still positive.”

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