December 4, 2012 / 12:56 PM / in 5 years

Brazil industry logs first annual growth in over a year

SAO PAULO (Reuters) - Brazilian industrial output posted its first annual increase in more than a year in October as a tax break on autos helped support a nascent recovery in the country’s beleaguered manufacturing sector.

Output from Brazilian factories and mines expanded 2.3 percent in October from a year earlier, government statistics agency IBGE said on Tuesday, though less than the 2.5 percent rise forecast in a Reuters poll of 33 analysts. Industrial production dropped 3.6 percent on a year-over-year basis in September, IBGE said, revised from a 3.8 percent drop.

“There is a gradual recovery happening,” said Jankiel Santos, chief economist with BES Investimento in Sao Paulo. “Bit by bit we are getting more signals of it and today’s numbers confirm it.”

October’s figures were the first annual rise in industrial production since August 2011, when Brazil’s central bank began a series of interest rate cuts aimed at protecting Latin America’s largest economy from the effects of a global slowdown.

President Dilma Rousseff’s government has supplemented those rate cuts with a series of stimulus measures, trade barriers and tax breaks, though the positive impact on Brazil’s manufacturers, who struggle with high labor costs, exorbitant taxes and logistical bottlenecks, has been muted so far.

Brazil’s economic recovery has been much slower than expected, with government data on Friday showing Brazil’s gross domestic product expanded just 0.6 percent in the third quarter, though industry, which dragged on growth in recent quarters, showed signs of a rebound.

Demand for durable goods such as domestic appliances and cars was a principal engine behind this month’s rise in industrial production, IBGE said.

Automobile production, which makes up more than one-fifth of Brazil’s manufacturing output, rose 12.8 percent from September, benefitting from the extension of tax breaks until the end of the year, according to the national automakers’ association Anfavea.

“I serious doubt we won’t see an extension of tax breaks on cars,” Santos added. “The GDP number is more important than industrial production...we’ll have more measures coming.”

October’s figures suggest those measures are gradually taking more effect, aided by an over 12 percent drop in the value of Brazil’s currency, the real against the U.S. dollar this year. A weaker currency makes the country’s exports more competitive, helping support demand for manufactured goods.

Output of capital goods fell, however, shrinking a seasonally adjusted 0.6 percent and suggesting businesses still lack enough confidence to invest in new capacity.

“There is caution among both domestic and foreign businesspeople...due to changes in macroeconomic policy and the fact that no one knows for certain what the results will be,” said Alessandra Ribeiro, an economist with Tendencias Consultoria in Sao Paulo, who pointed to exchange rate, trade, and fiscal policy changes that have recently taken place in Brazil.

Other leading indicators for the manufacturing industry, such as HSBC’s Brazil Manufacturing purchasing managers’ survey, showed industry expanding at the fastest rate in nearly two years in November.

Industrial production in Brazil expanded 0.9 percent in October from September, reversing the previous month’s 0.6 percent decline, which was revised on Tuesday from a previously reported 1 percent decline. Still, the number fell below the 1.2 percent rise forecast by 35 economists in a Reuters survey.

Of the 27 industrial sectors surveyed by IBGE, 13 expanded in October from September, including automobiles, machinery and equipment, and mining and quarrying.

In broader industrial categories, output of capital goods fell a seasonally adjusted 0.6 percent for the month, the IBGE said. Production of durable consumer goods rose 1.4 percent from September, and intermediate goods climbed 0.6 percent.

For details on the IBGE industrial output figures see: here

Additional reporting by Camila Moreira and Silvio Cascione Editing by W Simon; Editing by W Simon

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