MercoPress. South Atlantic News Agency

Brazilian industry growth flat .

Brazilian industry experienced last March its greatest drop in sales in eight years according to the latest release from the National Confederation of Industry, CNI. The report indicates that the fall was equivalent to 11,82% compared to February.

However the CNI index which was started in 1995, indicates that industry sales remained stable compared to March 2002 (slight 0,04% increase) and the first quarter registered an overall 4,75% advance.

Flavio Castelo Branco, CNI economist pointed out that the drop was "significant", and is "coherent" with Brazil's Central Bank monetary decisions which pushed the basic interest rate to 26,5%, plus other compulsory regulations on bank deposits that drained credit from the economy.

"March figures reinforce the retraction tendency of industry. Since last October industrial activity has been sliding from 81,5% to 79,8%. Worked hours in March also dropped 4,05% over February although the first quarter of 2003 experienced a 1,69% increase over the same period a yea ago", said Mr. Castelo Branco.

Regarding employment CNI numbers indicated a slight 0,07% increase in March over February, and 1,18% in the first quarter, but real income in industrial employment dropped 7,74% in March and 6,66%, in Q 1.

"Industry seems to be adjusting to increased costs by cutting salaries and jobs", added economist Castelo Branco.

The CNI report also stresses that at the current rate it's hard to see the Brazilian economy reaching the 2,5% expansion target of the government for 2003. CNI is assuming a GDP growth of 1,8% to 2% this year, with industry activity in the range of 1,6% to 1,8%.

"To keep to the original 2,5% government target the Brazilian economy would have to experience an exceptional second half and this means reducing interest rates", however, "so far the Central Bank has been extremely conservative with its monetary policy".

"If interest rates remain high, employment in industry will keep contracting and the annual growth estimate will have to be again reconsidered in June".

Mr. Castelo Branco said that strong growth rates are closely linked to export industries, but this does not seem to extend to the overall industrial sector.

"To have a strong industrial showing, a strong domestic demand and income recovery are essential; so far only agro-business has benefited from the export expansion", said Mr. Castelo Branco.

The Brazilian Foreign Trade Office latest report shows that export surplus in the second week of May had reached 5,9 billion US dollars, a 239% increase over the same period in 2002. Overseas sales have grown to 22,45 billion US dollars and imports, 16,51 billion US dollars. Brazil is averaging daily exports of 258 million US dollars compared to 203 million a year ago, while imports have remained rather stable, 183,6 and 189,9 million US dollars.

Commodities show the greatest dynamism with sales jumping 78%, mainly soybeans, soybean flour, iron, oil, beef, pork and poultry and coffee. Semi industrialized overseas sales increased 34,8% and manufactured goods 14,6% (automobiles, engines, footwear, auto-parts, furniture, pumps, generators and compressors, tires and plied wood).