UPDATE 2-Brazil industrial output gives up most of January's gains

Tue Apr 2, 2013 9:38am EDT

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* Industrial output falls 2.5 pct from January
    * Nearly erases previous month's gains
    * Capital goods output slowly recovering


    By Asher Levine
    SAO PAULO, April 2 (Reuters) - Brazilian industrial output
shrank more than expected in February, reversing most of the
previous month's gains and casting fresh doubt over the health
of a meager recovery in the struggling sector.
    Industrial production fell a seasonally adjusted 2.5 percent
in February from January, more than the 2.05 percent
drop forecast in a Reuters poll, government statistics agency
IBGE said on Tuesday.
    "(The data) came in bad, but it wasn't that much of a
surprise...the industrial recovery remains quite fragile," said
Daniel Cunha, an economist with XP Investimentos in Rio de
Janeiro. "The good news is that it showed a more favorable trend
for capital goods."
    The data also 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 on Tuesday, with the yield on contracts maturing in
January 2014 , the most traded in the session, down 4
basis points to 7.74 percent. 
    Production of capital goods rose for the second straight
month, adding 1.6 percent 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 labor costs.
    February's industrial production shrank 3.2 percent
 over the same month a year ago, greater than the 2.4
percent decline forecast in the survey. 
    
    President Dilma Rousseff's government has attempted to
revive the sector with stimulus measures, trade barriers and tax
breaks. After a 2.7 percent contraction in 2012, economists
expect industrial output to grow 3.12 percent this year,
according to the median forecast in a central bank poll.
    Industrial production had risen more than expected in
January, bolstered by surging capital goods output as government
stimulus boosted sales of heavy trucks. 
    IBGE revised January's data on Tuesday to show a 2.6 percent
rise from December, up from a previously reported 2.5 percent.
    Analysts said those gains were mostly a one-off occurrence,
and that February's numbers better reflected the challenges
still facing Brazilian industry as the effects of stimulus wear
off.
    "The data erased nearly everything we gained in January, but
those gains were mostly seasonal, with the refilling of stocks
after the holidays, and the effects of the government stimulus
on autos," said Mariana Hauer, an economist with Banco ABC
Brasil in Sao Paulo. "I don't think we're seeing a recovery yet.
 The data shows we are still very stagnated and the drop was
very disseminated across the sectors."
    Of the 27 industrial sectors surveyed by IBGE, 15 shrank in
February from January, including automobile production,
pharmaceuticals, foods and paper products.
    In broader industrial categories, durable consumer goods
fell 6.8 percent, while intermediate goods dropped 1.3 percent.
   
    
 (pct change)                   Feb/Jan    Feb/Feb12
                                                     
 Capital goods                        1.6         9.1
 Intermediate goods                  -1.3        -4.4
 Consumer goods                      -4.2        -5.0
     Durable consumer goods          -6.8        -2.2
     Semi-durable and                -2.1        -5.8
 non-durable consumer goods                
                                                     
 Industrial output                   -2.5        -3.2
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