Brazil Industrial Production Falls in April for Second Month

Brazil’s industrial production in April contracted for the second month in a row, as output of capital goods and consumer durables fell.

Production dropped 0.3 percent from the previous month after contracting 0.5 percent in March, the national statistics agency said today in Rio de Janeiro. The decline was smaller than the the median estimate of a 0.4 percent fall from 33 economists surveyed by Bloomberg. Production declined 5.8 percent from the year before, versus a 6.1 percent fall forecast by analysts.

Brazilian industry has sputtered as the central bank raised borrowed costs over the past year to combat above-target inflation, leading to a slide in business and consumer confidence. Manufacturers have also been hit by economic troubles in Argentina, Brazil’s third-biggest trading partner. Analysts expect the currency to weaken by year-end, improving the outlook for exporters.

Today’s data “add to the building sense of concern in this sector,” Daniel Snowden, emerging markets analyst at Informa Global Markets, said by phone from London. “No matter what the government seems to do, no matter what the central bank seems to do, the sector just doesn’t want to put together any kind of consistent run. It’s been lifeless.”

Swap rates on the contract maturing in January 2017 fell five basis points, or 0.05 percentage point, to 11.75 percent at 10:07 a.m. local time. The real strengthened 0.4 percent to 2.2722 per U.S. dollar.

Durable Goods

Output of capital goods fell 0.5 percent, the institute said today. Production of durable consumer goods declined 1.6 percent. Of the 24 industries studied by the statistics institute, output fell in 12.

The three-month moving average of industrial production was down 0.2 percent in April, the institute said.

The central bank held the benchmark Selic interest rate at 11 percent in its last monetary policy meeting, the first pause after nine straight increases and up from a record-low 7.25 percent in April 2013. Consumer prices in the year through April rose 6.28 percent. The statistics institute will release May inflation data on June 6. Brazil’s government targets 4.5 percent inflation, plus or minus two percentage points.

Swaps Contracts

The central bank also extended until the end of June a program to auction swaps contracts. The program supports the currency, thus holding down prices of imported goods. After gaining more than all but one major currency against the U.S. dollar this year, the real in the past week has slipped 1.8 percent. Analysts surveyed by the central bank on May 30 forecast the real will weaken to 2.40 per U.S. dollar by year-end.

Brazilian exports to Argentina fell 18.6 percent in the first five months of 2014 from the same period a year earlier, to $6.2 billion, the Trade Ministry said on June 2. Argentina purchased 6.9 percent of Brazilian exports in the period, down from 8.2 percent the prior year.

A stronger currency and the possibility of power rationing has coincided with a decline in industrial confidence, which fell in May to its lowest level in more than five years, according to the National Industry Confederation. Consumer confidence also has plunged as Brazilians see their purchasing power eroded, falling last month to the weakest level in more than five years, according to a survey conducted by the Getulio Vargas Foundation.

Losing Steam

The drop in industry output was widespread, which “means we are really losing some steam,” Roberto Padovani, chief economist at Votorantim Ctvm, said by phone from Sao Paulo. Output of 43.7 percent of products grew in April, down from 59.5 percent in March, the statistics agency said.

Industry contracted 0.8 percent in the first quarter, following revised 1.7 percent growth in 2013, according to data the statistics institute released May 30. That was the biggest drop since the second quarter of 2012. Investment meantime fell 2.1 percent, marking its largest decline in two years, while consumer spending fell 0.1 percent, the first drop since 2009.

Gross domestic product as a whole grew 0.2 percent in the first quarter, equivalent to an annual rate of 0.8 percent. Were it not for inventory accumulation and government spending, the economy would have contracted, Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc., wrote in a note to clients. The increase in inventories doesn’t bode well for second-quarter growth, he said.

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