Brazil Industry Output Has Biggest Drop in Over Three Years

  • Capital goods output recorded second straight month of growth
  • `Too early' to call a rebound in capital goods, says Mizuho

Brazil’s industrial output fell the most in more than three years in February as Latin America’s largest economy sank into its second straight year of recession.

Production sank 2.5 percent in February after a 0.4 percent increase the prior month, the national statistics agency said Friday. That was in line with forecasts from 32 economists surveyed by Bloomberg. From a year earlier, industrial production fell 9.8 percent, and marked two full years without recording year-on-year growth.

Political strife and the highest interest rates in almost a decade are squelching appetite for investment in Latin America’s largest economy. The government has mobilized state bank resources in a bid to ease the impact of the recession on Brazilians. While it hasn’t generated much additional lending, business confidence has continued rising from its record low last October and capital goods production recorded two straight gains for the first time in more than a year.

“It’s too early to say we’re seeing a change in trend in capital goods production because there’s nothing that supports investments right now in Brazil,” Luciano Rostagno, chief strategist at Banco Mizuho do Brasil, said by phone from Sao Paulo. “Consumption is slowing, the job market is in sharp deterioration, there’s high inflation, political turmoil, so there are a lot of uncertainties still, and no reason for investments to rebound.”

Output of capital goods, a barometer of investment, rose 0.3 percent after a revised 2.1 percent growth the previous month, and was the only major component that registered growth in February, the statistics institute said. Production of durable consumer goods fell 5.3 percent after a 3.3 percent drop the prior month.

In late-January, Finance Minister Nelson Barbosa announced 83 billion reais ($23 billion) in extra lending by state-run banks to stimulate investment. Of that total, only 2.7 percent has been disbursed, which may signal a lack of demand, local paper Estado de S. Paulo reported March 29.

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