Brazil Industrial Output Falls Less Than Forecast in January

Updated on
  • Year-on-year production rose for the first time since 2014
  • Capital goods output fell for the second straight month

Brazil’s industrial output fell less than forecast in January as policy makers seek signs that the country is on its way out of its biggest recession on record.

Production fell 0.1 percent in the month, compared with the median 0.4 percent decline forecast by 41 economists polled by Bloomberg. From a year earlier, industrial output expanded 1.4 percent, marking its first increase in nearly three years, the national statistics agency said Wednesday.

Brazil’s industry has suffered during the economic downturn as weak demand sapped sales and above-target inflation prompted costs to soar. The rebound in year-on-year growth comes as welcome news following Tuesday’s GDP report, which showed yet another contraction for the industrial sector in the fourth quarter. Still, declines in capital goods production, a barometer of investment, contrasts with Finance Minister Henrique Meirelles’ claim that the recession is finally over.

“With these numbers in hand, one can’t determine a recovery yet,” said Rodrigo Melo, chief economist at Icatu Vanguarda Administracao de Recursos Ltda. “It’s still a situation of weakness, but there are positive signs in some segments.”

Of the 24 industrial sectors monitored, half recorded increases in the month, led by petroleum derivatives and pharmaceuticals. Output of capital goods fell 4.1 percent after a revised 3.8 percent drop in the previous month. Production of consumer goods and intermediate goods grew for the third consecutive month.

“That’s pretty encouraging from our perspective,” Edward Glossop, emerging markets economist at Capital Economics Ltd, said by phone. “Looser financial conditions because of interest rate cuts may be starting to feed through to consumers.”

The falling benchmark Selic rate, which is expected to return to single digits by year-end, has already helped to prompt a resurgence of both industry and consumer confidence levels from record lows.

Swap rates on the contract maturing in January 2018, an indicator of future interest rate moves, rose 2 basis points to 10.24 percent at 9:41 a.m. local time.

— With assistance by Rafael Mendes

(Updates with analyst quote in fourth paragraph.)
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