Brazil March Industry Production Contracts Less Than Forecast

Brazil’s industrial production in March contracted less than economists forecast, as the national statistics agency introduced a new methodology to calculate output.

Production fell 0.5 percent from the previous month after remaining flat in February, the national statistics agency said today in Rio de Janeiro. The figure was less than the 2.4 percent decline estimate by 38 economists surveyed by Bloomberg. Production fell 0.9 percent from the year before, versus a 3 percent fall forecast by analysts.

President Dilma Rousseff has tried to stimulate investment in the world’s second-largest emerging market in order to shore up slowing economic growth. That effort has been hampered by the central bank raising interest rates to control above-target inflation. A stronger currency, up 6 percent so far this year, poses an additional hurdle for exporters, and the possibility of electricity rationing also hovers over manufacturers.

Swap rates on the contract maturing in January 2015 were unchanged at 10.97 percent at 9:10 a.m. local time. The real strengthened 0.1 percent to 2.2278 per U.S. dollar.

Output of capital goods fell 3.6 percent, the institute said today. Production of durable consumer goods dropped 2.5 percent. Of the 24 industries studied by the statistics institute, output fell in 14, including a 2.9 percent decline in automotive vehicles.

New Methodology

Today’s data mark the introduction of the statistics institute’s adjusted methodology. The new series surveys 7,800 production locations, more than double the 3,700 units previously. It incorporates 144 additional products, including biodiesel and tablet computers, that were either nonexistent or irrelevant when the prior survey was devised. It also includes the state of Mato Grosso for the first time.

The new industrial production methodology will probably prompt revisions of GDP data in 2013, Flavio Maghelli, the IBGE’s industry coordinator told reporters on April 28.

After weakening 13 percent against the U.S. dollar in 2013, the real this year has gained more than all other major currencies. While that helps the central bank’s effort to contain consumer price increases by reducing the cost of imported goods, it hurts manufactured exports’ competitiveness.

“The real around 2.4 per dollar established a certain enthusiasm in the industrial export sector,” former Finance Minister Antonio Delfim Netto said in an interview last month. “When you allow fluctuations like the one we’re experiencing, going from 2.38 to 2.25, a company destined to become an exporter has to adjust.”

Benchmark Rate

The central bank has raised the benchmark Selic interest rate in nine consecutive meetings from a record-low 7.25 percent to 11 percent, to tame inflation that reached 6.15 percent in March, above the bank’s 4.5 percent target and nearing the 6.5 percent top of the target range. The bank also extended until June a program to auction swaps contracts to support the currency.

Industrial confidence, as measured by the National Industry Confederation, fell in April to its lowest level in five years.

With the rainy season running from November to April, Brazil’s dams are forecast to be below historical levels for the rest of the year. The risk of energy rationing remains high, and could lead to a recession, according to an April 28 report from Bank of America analysts.

Brazil is not expected to announce any measures to ration power or stimulate energy saving after a May 7 meeting of the government’s electricity committee, the Energy Ministry said in e-mailed response to questions on May 5.

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. That’s less than a third the growth rate in 2010, the year before Rousseff took office.

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