Industrial production in Brazil declines for the 2nd month in February and frustrates expectations By Reuters

By Camila Moreira and Rodrigo Viga Gaier

SÃO PAULO/RIO DE JANEIRO (Reuters) – Frustrated expectations and recorded a decline of 0.3% in February, marking the second month in a row in the red and raising a warning signal.

In the first two months of the year, the sector accumulated losses of 1.8%, which eliminates part of the positive balance of 2.7% seen from August to December, the Brazilian Institute of Geography and Statistics (IBGE) reported this Wednesday.

The industry is still 1.1% below the pre-pandemic level of February 2020, and 17.7% below the record level in the series, reached in May 2011.

In comparison with the same month of the previous year, there was an increase of 5.0%, the seventh positive reading in a row.

The results were much worse than the expectations raised in a Reuters survey of economists, an increase of 0.3% on a monthly basis and 5.6% on an annual basis.

“These two drops are a warning signal for the industry. There is a loss of production pace, but with the peculiarity that there are two more concentrated drops (in a few sectors)”, highlighted André Macedo, research manager at IBGE.

“The improvement in the situation and the domestic market was still not enough to keep the industry at a positive level”, he added.

Analysts consider that the industry should grow this year, albeit at a slow pace, with a gradual recovery mainly in segments dependent on credit conditions, favored by the fall in interest rates.

The Central Bank decided last month to make a further reduction of 0.50 percentage points, to 10.75% per year, but shortened its indication on future cuts by citing an increase in uncertainty, stating that its board foresees a cut of the same intensity only at the next meeting in May.

“Our outlook is for a relatively positive industry this year. Among the factors that place an upward bias are: recovery of the global manufacturing sector, robust trade balance… and policies to stimulate economic activity by the government”, said Igor Cadilhac is an economist at PicPay.

IBGE highlighted that, in February, 10 of the 25 industrial sectors surveyed showed a reduction in production compared to the previous month.

The main negative influences were exerted by chemical products (-3.5%), extractive industries (-0.9%) and pharmochemical and pharmaceutical products (-6.0%).

“If last year the extractive industry played a central role in the growth of the sector in general, for this year, the tendency is for there to be a recovery in other segments,… largely due to the fall in the Selic rate and the better conditions for credit”, said Rafael Perez, economist at Suno Research.

At the other end, motor vehicles, trailers and bodies (6.5%) and cellulose, paper and paper products (5.8%) showed an increase in production in February.

“Conjunctural issues are present, such as falling interest rates, reducing defaults, improving the job market, and this all appears in automotive vehicles, which depend heavily on credit and interest,” said Macedo.

Among the economic categories, only Intermediate Goods showed a drop of 1.2%. The manufacturing of Capital Goods increased by 1.8% in the month and that of Consumer Goods grew by 1.3%.