BRASILIA: Brazil’s industrial output in May unexpectedly increased, as President Dilma Rousseff’s government works to revive an economy headed for recession this year.
Output in May rose 0.6 percent from the previous month, after a 1.2 percent decline in April, the national statistics agency said in Rio de Janeiro. That was better than every estimate from 39 economists surveyed by Bloomberg, whose median forecast was for a 0.4 percent decline. Industrial output fell 8.8 percent from the year before.
Industrial confidence in Brazil has risen from a record low as Rousseff’s government takes steps to fortify fiscal accounts and pushes a $64 billion program of infrastructure investment. While industry faces the highest borrowing costs since 2009, a weaker currency helps make the country’s exports more attractive.
“Could be that we’re seeing the first signs that the industrial sector is starting to respond to the effects of the much weaker real,” Neil Shearing, chief emerging-markets economist at Capital Economics, said by phone from London. “This isn’t the type of broad-based rebound that could be the sign of better things to come, but at the same time it’s the first piece of good news we’ve had from the economy in several months, and it’s going to help ease concerns.”
Swap rates maturing in January 2017 fell 10 basis points, or 0.10 percentage point, to 13.92 percent at 9:57 a.m. local time. The real strengthened 0.5 percent to 3.1337 per U.S. dollar and has weakened 15 percent this year, the most among 24 emerging-market currencies tracked by Bloomberg.
Capital Goods
Output of capital goods in May, a barometer of investment, rose 0.2 percent, the statistics institute said. Production of consumer goods rose 1.4 percent. Of the 24 industries studied by the institute, output rose in 14, including an 8.9 percent jump in transport equipment. The overall increase was the first since January and the biggest since last July.
The weaker currency this year follows a 23 percent depreciation in 2014. Brazil posted a trade surplus of $4.5 billion in June, including a record in soy and chicken exports, the Industry and Trade Ministry said Wednesday. The nation registered a trade surplus in the first half of the 2015 for the first time in three years.
Benchmark Rate
Brazil’s central bank has raised the benchmark Selic rate in six straight meetings to 13.75 percent, and analysts surveyed June 26 expect an additional 0.75 percentage point of tightening by year-end. They predict the economy will contract 1.49 percent this year.
The weakness of industry is reflected in the 26.3 percent fall in capital goods production from same month of 2014, according to Thais Zara, chief economist at Rosenberg Consultores Asociados.
“It’s a little better, but it doesn’t change the scenario of deterioration that we’ve had in recent months,” Zara said by phone from Sao Paulo.
With higher interest rates stifling investment, Rousseff has sought to drum up interest in the nation’s infrastructure program during an official visit to the U.S. Participation of U.S. builders in the program’s highway, airport, port, and railway projects may benefit Brazil as its own construction industry is hobbled by an investigation into kickbacks at state-run oil company Petroleo Brasileiro SA.
Investment Plan
Petrobras cut its investment plan through 2019 to $130 billion, down 37 percent, it said June 29. Output is now targeted at 2.8 million barrels a day by 2020 from 4.2 million previously.
Following Rousseff’s visit, the Brazilian meatpacking industry stands to increase exports. The U.S. Department of Agriculture dropped its restriction on Brazilian beef, provided authorities can verify steps taken to mitigate risk of foot-and-mouth disease.
Brazil’s lower house last week approved legislation to raise taxes on companies. It is the last bill in the fiscal adjustment package intended to avert a sovereign credit downgrade. Business confidence in June, as measured by the National Industry Confederation, rose for the third straight time from the lowest level on record.
