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Brazilian industrial production continues to struggle despite all the incentives

Thursday, April 4th 2013 - 07:51 UTC
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Foreign Trade Secretary Prazeres expects exports to remain at the record levels of 2012 and 2011 Foreign Trade Secretary Prazeres expects exports to remain at the record levels of 2012 and 2011

Brazil’s industrial output shrank more than expected in February, reversing most of the previous month’s gains and casting fresh doubt over the health of an anaemic recovery in the struggling sector.

Industrial production fell a seasonally adjusted 2.5% in February from January, more than the 2.05% drop forecast in a poll, government statistics agency IBGE said this week.

The data reinforced bets that Brazil’s Central Bank would not raise interest rates at its next policy meeting in April despite quickening inflation, for fear of putting the economy's fragile recovery at risk.

Yields on interest rate futures dropped in early trading with the yield on contracts maturing in January 2014, the most traded in the session, down 4 basis points to 7.74%.

However production of capital goods rose for the second straight month, adding 1.6% in February from January. Capital goods production had suffered in the previous year as a lack of business confidence led companies to hold off on making investments.

Brazil’s economic growth has been limited by its manufacturing sector in recent years, as industry struggles with infrastructure bottlenecks, chronically low levels of investment and rising labour costs.

February's industrial production shrank 3.2% over the same month a year ago, greater than the 2.4% decline forecast in the survey.

In related data Brazil posted the smallest trade surplus for the month of March since 2001, largely due to a drop in oil exports and an increase in the purchase of petroleum derivatives, such as gasoline, the government said.

The trade surplus in March was 164 million dollars which follows on a trade deficit of 1.2 billion in February and a record 4bn in January.

Record soy and corn crops should help the trade balance improve in coming months, said Foreign Trade Secretary Tatiana Prazeres.

“We expect exports to remain at the record levels we saw in 2012 and 2011,” she told reporters in Brasilia.

Brazil had record exports in 2011 of 256 billion dollars, but exports fell 5.3% to 242.58 billion in 2012. The 2012 number was still higher than any year prior to 2011.

Exports in March rose 1.6% to 19.32bn versus the same month in 2012, while imports rose 11.6% to 19.159bn.

Brazil's trade deficit in the first three months of the year amounted to 5.150bn. Last week, the central bank revised its 2013 trade surplus estimate to 15bn from 17bn previously.

The government has blamed the large trade deficit so far this year on a change in the tax agency's accounting procedures that included billions of dollars in fuel imports from 2012 in this year's trade balance.

Prazeres acknowledged that 1.8bn in fuel import bills from last year will likely limit the recovery of the trade balance in coming months. A drop in Brazilian exports to Argentina has also hurt the trade balance and further splintered trade ties between the Mercosur partners.

Although exports make up only about 10% of Brazil's 2.5 trillion dollars GDP, they are considered a key part of the economy by President Dilma Rousseff's government. She has offered billions of dollars in subsidized lending to help exporters, mostly those who produce manufactured goods. She has also raised trade barriers on dozens of imported products to protect local industry.

 

Categories: Economy, Politics, Brazil.

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