* Industrial output rises 0.2 pct in June, below forecasts
* Suggests stimulus, lower interest rates slowly taking
* Production falls 5.5 percent from year earlier
By Asher Levine
SAO PAULO, Aug 1 Brazil's industrial output
edged up less than expected in June after three straight months
of decline, suggesting the central bank may need to take more
action to boost the country's lagging manufacturing sector.
Industrial production expanded 0.2 percent in June from May
, government statistics agency IBGE said on Wednesday,
less than the 0.8 percent expansion forecast in a Reuters poll
of 17 analysts.
June was the first rebound after three straight months of
declining output, as manufacturers continue to struggle with
high taxes, a shortage of skilled workers and inadequate
infrastructure. In May, industrial output fell 1 percent,
revised down from 0.9 percent, the IBGE said on Wednesday.
"We are seeing a turnaround after an inflection point, after
having negative growth for several consecutive months," Brazil
Finance Minister Guido Mantega said on Wednesday. "From here on
we will see better results."
Intent on reviving growth, President Dilma Rousseff's
administration has chopped central bank benchmark interest rates
to an all-time low of 8 percent, provided
industries and consumers with tax breaks, and vowed to step up
government purchases of industrial goods.
"The ball is in the central bank's court," wrote Andre
Perfeito, chief economist with Gradual Investimentos in Sao
Paulo in a note to investors. "The Selic should fall to 7
percent to help sustain investment, helping unblock a channel
that is clogged due to a worsening of corporate forecasts."
Yields on interest rate futures fell across the
board following the industrial production data as traders
stepped up their bets on further interest rate cuts to help
Brazil's central bank is widely expected to cute rates by 50
basis points later this month, after which it will likely keep
rates stable or follow with a 25 basis point cut in October.
Still, many analysts see limits to further government
stimulus as falling government revenue weighs on fiscal
"The stimulus has been effective in drawing down
inventories, but we are reaching the limit," said Mauricio
Rosal, chief economist with Raymond James & Associates in Sao
Paulo. "As I see it, a sustainable recovery in industry will
only occur when the credit market unlocks and local demand
reacts. I wouldn't put a lot of faith in a recovery of external
demand--there is a serious structural problem there."
So far, mining and steel companies said they are expecting
only a very gradual recovery in coming months after reporting
dismal second-quarter performance. Vale, the world's
largest iron ore producer, saw profit tumble 59 percent in the
quarter after demand for the mineral plummeted in China, warning
that the situation will spill over into coming quarters.
Other companies, including flat steel producer Usiminas
, also reported weak results because of the rising
cost of goods sold and a decline in the currency, which drove
financing costs and other expenses higher. Companies such as
Fibria, the world's largest producer of pulp, had
trouble bringing down the value of their debt, and vowed to cut
investment to protect their balance sheet against market swings.
Other leading indicators for the manufacturing industry,
such as HSBC's Brazil Manufacturing purchasing managers' survey,
suggest weakness will continue in the sector. The index fell in
July for the fourth month in a row, to 48.7, below the 50 mark
that divides growth from contraction.
June's industrial production fell 5.5 percent from a year
earlier, more than the 4.3 percent decline predicted
in the Reuters poll. Analyst forecasts ranged from a contraction
of 2 percent to 5.3 percent.
Of the 27 industrial sectors surveyed by IBGE, 12 expanded
in June from May, including pharmaceuticals, automobiles, and
other types of transportation equipment.
In broader industrial categories, output of capital goods
rose a seasonally adjusted 1.4 percent for the month, the IBGE
said. Production of durable consumer goods rose 4.8 percent from
May, and intermediate goods fell 0.9 percent.