UPDATE 2-Brazil industry rebounds but strong recovery in doubt
* 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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