Brazil’s December Industrial Output Falls More Than Forecast

Brazil’s industrial output declined more than economists estimated in December, as output of capital goods plunged in the world’s second-biggest emerging market.

Production in December fell 2.8 percent from the previous month, the biggest drop in a year, after a revised 1.1 percent decline in November, the national statistics agency said today in Rio de Janeiro. The decline compares with a median estimate of a 2.5 percent drop from 41 economists surveyed by Bloomberg.

Manufacturers are shouldering higher interest rates as Brazil’s central bank raises borrowing costs to slow inflation. At the same time, President Dilma Rousseff’s government is cutting spending and boosting taxes to shore up fiscal accounts, and economists have pared their 2015 growth forecast to virtual stagnation. Possible water and energy shortages could also bring headwinds for industry, which shrank in seven of 12 months last year.

“It’s quite clear that the industrial sector is struggling,” said Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London. “What’s more, with the fiscal squeeze now coming and power rationing looking increasingly likely in one form or another, it’s difficult to see the trigger for an upturn at any point over the coming months.”

Swap rates maturing in January 2017 fell three basis points, or 0.03 percentage point, to 12.59 percent at 10:06 a.m. local time. The real strengthened 0.7 percent to 2.7077 per U.S. dollar.

Three Years

Output of capital goods in December fell 23 percent, the biggest drop in nearly three years, according to the statistics institute. Production of durable consumer goods declined 2.2 percent. Of the 24 industries studied by the institute, output dropped in 17, including a 5.8 percent fall in cars and auto parts.

Industrial output fell 2.7 percent from the year before, compared with a 2.6 percent drop forecast by analysts, the statistics institute said today.

Policy makers have raised the benchmark rate at all three meetings since Rousseff won re-election in October, to 12.25 percent, the highest level since mid-2011. Even with the tightening, economists surveyed by the central bank Jan. 30 expect inflation to accelerate to 7.01 percent this year. They foresee Brazil’s economy growing 0.03 percent in 2015.

Slower Growth

Itau Unibanco SA on Monday cut its 2015 gross domestic product forecast to a 0.5 percent contraction from 0.2 percent growth previously, citing a slowdown in economic activity in December plus the risk of water shortages and electricity rationing. UBS AG said Monday that energy rationing could cause GDP to contract as much as 1.5 percent.

Industrial output probably shaved about 0.25 percentage points from fourth-quarter gross domestic product, according to Capital Economics’ Shearing. Economists surveyed by Bloomberg from Jan. 16 to Jan. 21 forecast 0.3 percent growth in the fourth quarter.

Brazilian carmakers produced 203,760 cars in December, the least in nearly five years, according to automobile manufacturing association Anfavea. Industrial confidence as measured by the National Industry Confederation in January posted a new low for the series that began more than a decade ago.

“High inventories and low confidence don’t make us believe we’re going to have some kind of relevant rebound for the coming months,” Roberto Padovani, chief economist at Votorantim Corretora, said by phone from Sao Paulo. “Bottom line is the economy is very weak and downside risks are still on stage, and we see risks of recession in Brazil this year.”

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