Brazil’s Industry Records Worst Drop in Almost Five Years

  • Output falls more than forecast by 36 out of 39 economists
  • Production of capital goods rise 0.4 percent, however

Brazil’s industrial output fell more than expected in August, eliminating gains recorded over the past five straight months and pointing to a long road to economic recovery.

Production fell 3.8 percent from July, more than the median forecast from 39 economists surveyed by Bloomberg for a 3.2 percent drop. It was the worst performance since January 2012. From a year earlier, industrial output fell 5.2 percent, the national statistics agency said Tuesday.

The data highlights the challenges facing Brazil’s industry even as signs of economic recovery emerge. Business confidence has been rising steadily as Finance Minister Henrique Meirelles pushes measures to rein in spending and pull Latin America’s largest economy from recession.

“It reminds us that the road to recovery will be bumpy,” Luciano Rostagno, chief strategist at Banco Mizuho do Brasil, said by phone. “The increase of capital goods production is a positive sign, and shows that the trend continues to be upwards for industry.”

Output of capital goods, a barometer of investment, rose 0.4 percent in August after a revised 2.1 percent decline that was the first negative print since December. Production of durable consumer goods fell 9.3 percent and output of food products tumbled 8 percent. Of the 24 sectors monitored, 21 recorded declines.

Brazil’s currency, the real, shed 0.2 percent to 3.2158 per U.S. dollar at 9:59 a.m. local time.

Investment rose 0.4 percent in the second quarter, following 10 straight quarters of contraction, even with borrowing costs at their highest in about a decade. The benchmark Selic sits at 14.25 percent, and the market is betting on monetary easing to start at the central bank’s monetary policy committee meeting later this month. For the first time in more than two months, economists surveyed weekly by the central bank agree.

Brazil’s industrial confidence in September shot to its highest level since end-2013, and up from an all time low one year ago.

— With assistance by Rafael Mendes

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