UPDATE 2-Brazil industry rebounds but strong recovery in doubt

Thu Aug 1, 2013 10:38am EDT

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* Production rose 1.9 percent from May vs 1.3 percent
forecast
    * July PMI shows recovery still uneven, costs surging


    By Brad Haynes
    SAO PAULO, Aug 1 (Reuters) - Brazilian industrial output
rose more than expected in June on strong truck production, but
early indicators for July raised concerns that a manufacturing
recovery could be derailed by stagnant demand and rising costs.
    Industrial production in Brazil rose 1.9 percent in June
, after a revised 1.8 percent drop in May, Brazil's
IBGE statistics agency said on Thursday. The result beat the
average 1.3 percent growth forecast in a Reuters survey.
    The June rebound may be fleeting, however. A closely watched
private survey in July showed manufacturing activity contracting
for the first time in ten months, suggesting the up-and-down
nature of Brazil's industrial growth may continue into the
second half of 2013.
    The HSBC Purchasing Managers' Index for the Brazilian
manufacturing sector fell to a seasonally adjusted
48.5 in July, a 13-month low. Readings above 50 indicate growth.
    A sustained turnaround for Brazil's sluggish economy depends
on growth in its beleaguered industrial sector, say many
economists. Private growth forecasts have tumbled this year due
to consumer fatigue and weaker demand for commodity exports.
   
    Production figures have swung between growth and contraction
from month to month, accumulating a modest 1.9 percent rise
through June this year compared to the first half of 2012.
    "The picture that emerges from the data is ... of a modest
recovery after the dreadful 2012 performance," wrote Alexandre
Schwartsman, a former central bank director and partner with
Schwartsman & Associados, in a note regarding June output.
    He said data pointed to "recovery, yes, but far away from
anything that suggests very fast growth ahead."
    Struggling industries have weighed on Brazil's economy in
recent years and contributed to a weaker-than-expected 0.6
percent economic expansion in the first three months of 2013
from the prior quarter.
    The 10.6 percent depreciation this year of Brazil's
currency, the real , has boosted the competitiveness
of exports, but manufacturers are still confronting weak global
demand and eroding confidence among domestic consumers.
    The weaker real has also made imports more costly, pushing
up the price of industrial inputs in July at the fastest pace in
more than three years, according to the PMI report. As new
business dried up, the survey showed layoffs in the sector at a
one-year high. 
    June's industrial production increased 3.1 percent compared
with a year earlier, more than the 2.0 percent
median forecast in the Reuters survey.
    Growth was led by a rebound in the production of heavy
trucks, which are counted as capital goods. Shifting emissions
standards undermined truck output in 2012.
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