Independent data also paints slow days in May while analysts fear more weaknesses emerging this quarter, reports Team IFM
Sao Paolo, June 18: Brazil’s once-bustling economy went on a sloth mode in April, with its business activity showing only moderate upswing despite the imminent FIFA World Cup, even as an independent report projected a downcast scenario for May, saying operating conditions worsened at the fastest pace in ten months during the month.
According to official data released on Friday, the IBC–Br index of economic activity – the Brazilian central bank’s gauge for the country’s performance in the farming, industry and services sectors – crept up 0.12 percent in April, registering a sluggish start to the second quarter.
The IBC-Br index went down a non-seasonally adjusted 2.29 percent over the same month a year ago. According to central bank data, economic activity growth in the previous month was revised upwards – from a dip of 0.11 percent estimated earlier to 0.05 percent.
The upward revision failed to enthuse analysts, who have toned down their growth projections estimates from an expansion of 2.5 percent in 2013 to just 1.4 percent this year. “I couldn’t find anything positive at all in the (data),” Reuters quoted Bruno Rovai, an economist at Barclays, as saying.
The latest data announced on Friday was better than the 0.0 percent growth forecast in a Reuters’ survey of 19 analysts, but not enough to allay fears of more weaknesses emerging in the current quarter.
“It is compatible with our expectations for a slowdown in the second quarter,” said economists at Banco Bradesco, one of Brazil’s biggest banking and financial services companies, in a research note.
The data also reflected an economy with slowing rate of growth as the manufacturing sector led by automobile manufacturers cut back production after demand cooled as a result of higher interest rates and rising inflation. Brazil’s growth had swelled 0.7 percent in the fourth quarter last year.
Confirming the fears were the latest findings of HSBC, which said May data indicated that business conditions across the Brazilian manufacturing economy continued to deteriorate.
Sustained declines in new orders were accompanied by a stronger contraction of output and further job losses, and companies lowered their average tariffs for the first time since February 2012 in attempts to attract new business, it said.
“The HSBC Brazil Manufacturing PMI signalled a deepening slump of economic activity in Brazil’s industrial sector in May,” said Andre Loes, HSBC’s Chief Brazil Economist, referring to the index of industry that was at a ten-month low.
MAY SLUMPS
The seasonally adjusted HSBC Brazil Purchasing Managers’ Index or PMI went down moderately from 49.3 in the previous month to 48.8 in May. “But although moderate, it was the second consecutive deterioration in operating conditions,” HSBC said.
Sector data highlighted investment goods as the worst performing category in May, whereas business conditions also worsened at intermediate goods companies. An improvement was noted at consumer goods manufacturers.
Brazilian manufacturers, fettered by a second consecutive monthly reduction in order book volumes, scaled down output. Furthermore, the drop in production was the most in over two-and-a-half years.
“Anecdotal evidence highlighted an increasingly difficult economic climate and weaker domestic demand,” HSBC said.
However, foreign orders increased for the first time in five months – but at a marginal pace, with majority of panellists (97 percent) reporting no change in new orders from abroad.
Amid reports of subdued demand conditions and attempts to reduce costs, workforce numbers were lowered again in May, but the rate of job shedding was unchanged from the marginal pace seen in the previous month.
As part of efforts to improve competitiveness and secure new contracts, Brazilian manufacturers also reduced their output charges in May. Factory gate prices fell for the first time in 27 months, albeit slightly. Concurrently, input cost inflation moderated to the weakest in the current 57-month period of rising purchasing prices.
Work backlogs declined for the third successive month in May, with survey participants reporting spare capacity. Nonetheless, the rate of backlog depletion was slight overall and softened since April.
Purchasing activity expanded in May, following a contraction noted one month previously. That said, quantities of purchases rose at a fractional pace overall. Where growth was noted, this was associated with stock-building attempts.
As a result, inventories fell contrasting with growth recorded in April.
“Firms reported the biggest contraction in output since October 2011 and the first month-on-month decline in output prices since February 2012, reflecting weak demand conditions,” said HSBC economist Loes.
APRIL WOES
Recently, official government statistics agency IBGE said Brazil’s economy expanded 0.2 percent in the first quarter this year, compared to the October-December 2013 period from the previous quarter.
IBGE data shows that in April, the industrial sector was a picture of lower production rate portending the second straight month of decline.
It also reflected a predominance of negative rates, where three of the four major economic categories and most activities indicated reduction in production.
In the month under review, total industry production was 4.5 percent below the record level reached in May 2011.
“Yet the seasonally adjusted series, the signs of slowdown in industrial activity in that month were also evident in the evolution of the index quarterly moving average, which when registering negative growth of 0.2 percent in April, showed loss of pace compared to the result in March (0.7 percent),” IBGE said in a statement.
Compared to the same month last year, the industrial sector also marked a drop in production in April 2014 (down 5.8 percent), the sharpest decline since September 2009 (7.3 percent), “with a clear predominance of negative rates between the major economic categories surveyed,” said IBGE.
Among the activities, the auto sub-sector comprising motor vehicles, trailers and bodies plummeted 21.3 percent, having the biggest negative impact on the industry average.
A separate Reuters poll earlier suggested Brazil’s industrial production may have registered a fall for the second straight month in April with inventories piling up, another sign of weakening economic growth after a disappointing first quarter numbers.
According to the median of forecasts of 23 analysts in the Reuters poll, industrial production – comprising output from factories and mines – dropped a seasonally adjusted 0.3 percent from March.
“The worst thing is that (weak) confidence data from last month and the World Cup kicking off in June also do not suggest any stronger recovery in the second quarter,” Reuters quoted a research note by economists with Rosenberg & Associados.