Brazil February Industry Output Rises Second Straight Month

Brazil’s industrial production in February rose for the second straight month, as the central bank continues to boost rates to combat above-target inflation in the world’s second-biggest emerging market.

Production rose 0.4 percent from the previous month, the national statistics agency said today in Rio de Janeiro. That’s down from a revised 3.8 percent increase in January, which was the biggest jump since October, 2007. The February number was less than forecast by 41 economists surveyed by Bloomberg, whose median estimate was for a 0.5 percent increase. Production rose 5 percent from the year before, the most in 10 months, versus a 4.9 percent jump forecast by analysts.

President Dilma Rousseff has worked to boost investment in Latin America’s largest market even as borrowing costs rise. After exports got a boost in 2013 from a weaker currency, the real this year has strengthened more than all other major currencies tracked by Bloomberg except the New Zealand dollar. The country’s worst drought in decades has reduced hydroelectric generation and brought about the specter of power rationing.

“We had a disastrous end to 2013 for industry, and a strong start to 2014,” Neil Shearing, chief emerging markets economist at Capital Economics, said by phone from London. “But the strong start only reversed last year’s fall. It doesn’t look like very strong growth, but by the same token things aren’t collapsing.”

Swap rates on the contract maturing in January 2015, the most traded in Sao Paulo today, fell two basis points, or 0.02 percentage point, to 11.12 percent at 9:53 a.m. local time. The real weakened 0.3 percent to 2.2684 per U.S. dollar.

Durable Goods

Output of durable consumer goods rose 3.3 percent, the agency said today. Production of capital goods increased 0.1 percent. Of the 27 industries studied by the statistics institute, output increased in 19, including a 7 percent jump in motor vehicles.

A third straight month of growth would turn “the outlook for the rest of the year suddenly a lot brighter,” said Daniel Snowden, emerging markets analyst at Informa Global Markets, by phone from London. “It’s good we had another positive month, and the year-on-year pace of 5 percent is something we hadn’t seen for a long time.”

Brazil’s economy grew by 2.3 percent in 2013, including a 1.3 percent expansion in industry and 2.5 percent gain in exports. Gross domestic product expanded 0.7 percent in the last three months of the year after contracting in the third quarter.

Benchmark Rate

The central bank has raised the benchmark Selic interest rate in eight consecutive meetings from a record-low 7.25 percent to 10.75 percent. Policy makers conclude their two-day meeting today, and will raise borrowing costs by a quarter-point, according to all 57 analysts surveyed by Bloomberg.

After weakening 13 percent against the U.S. dollar in 2013, the real has pared losses by appreciating 4.1 percent this year. That lowers the cost of imported goods, helping the central bank’s effort to contain consumer price increases.

Consumer prices rose 5.68 percent in February from the year before, and inflation has remained above the official target of 4.5 percent since Sept. 2010. Analysts polled by the central bank on March 28 raised their 2014 inflation forecasts to 6.30 percent.

Rousseff’s administration in October rolled back tax cuts on appliances such as refrigerators and stoves, and on Jan. 1 began eliminating tax breaks on vehicles.

’Almost Certain’

Electricity rationing is “almost certain” within a year, Tito Martins Jr., chairman of the Brazilian Aluminum Association, which represents companies in the eighth-largest aluminum-producing nation, told a conference in Sao Paulo yesterday. Martins’ comments echo research by Citigroup Inc., which estimates a 94 percent risk of power rationing.

Oil company BP Plc told Bloomberg this week it will carry out a “significant reduction in operated activity and headcount” in Brazil. The draw-down will affect at least half the company’s workforce in the country.

Industrial confidence, as measured by the National Industry Confederation, rose in March after three straight declines. Iron-ore producer Vale’s Chief Executive Officer Murilo Ferreira said last month that investors betting on slower growth in China are misguided.

“The biggest enemy to our share price is a certain belief that China will be over,” Ferreira said during a presentation in Sao Paulo on March 19. “They are once more betting against China as they did in 2004, 2005, 2006 and beyond and I think that people are going to fail again with their projections.”

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