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Brazil factory activity falls for 3rd month in row
July 2, 2012 / 1:03 PM / 5 years ago

Brazil factory activity falls for 3rd month in row

* HSBC Brazil PMI falls to 48.5 in June, weakest since Oct

* Output, new orders decline weakest in eight months

* Factories cut jobs for third straight month

By Silvio Cascione

SAO PAULO, July 2 (Reuters) - Brazil’s manufacturing output in June shrank for the third straight month in the latest sign that a battery of government stimulus measures have yet to spur economic growth, a survey showed on Monday.

The HSBC Purchasing Managers’ Index (PMI) for the Brazilian manufacturing sector fell to 48.5 in June from 49.3 in May after seasonal adjustments, the lowest since October and below the 50 mark that divides growth from contraction.

Both showed both output and new orders posted the strongest pace of decline in eight months as demand remained weak, prompting companies to cut jobs for the third month in a row.

The PMI data could stir renewed concern among policy-makers who, anxious to revive growth, have chopped benchmark interest rates, granted new tax breaks and pledged to step up government buying of industrial goods.

It also highlights the impact of weak global demand over the world’s No. 6 economy, expected this year to have the weakest annual performance since a shallow recession of 0.3 percent in 2009.

Despite a relatively weak foreign exchange rate for the Brazilian currency in June, the PMI survey showed export orders declined at the same pace they did in May - extending the negative trend recorded for that component of the survey notched each month since April 2011.

A mix of high taxes, lack of skilled labor force and infrastructure bottlenecks is frequently blamed for Brazil’s manufacturing sluggishness, offseting all-time low interest benchmark interest rates of 8.5 percent.

“The manufacturing sector kept struggling with competitiveness,” said Andre Loes, HSBC Brazil chief economist.

“A weaker real and lower interest rates may provide some relief in the medium term, but the breakdown of the survey suggests that in the short term, things are likely to remain challenging for manufacturers.”

As private investments wane, President Dilma Rousseff announced last week an increase in government purchases this year of 6.6 billion reais ($3.2 billion), saying the government would “take all the necessary measures to protect production and jobs in our country.”

The next day, Brazil’s central bank sharply cut its 2012 growth forecast to a meager 2.5 percent. Most analysts expect the economy could slow even further. Brazil’s economy grew 2.7 percent in 2011 and 7.5 percent in 2010.

Official industrial output data for May will be released on July 3 by Brazil’s national statistics agency IBGE.

Markit, which compiled the PMI data for HSBC, added that stocks of finished goods were depleted for the tenth straight month and backlogs of work fell further in June.

Input costs rose, continuing the period of input price inflation started in September 2009. Raw materials such as oil and oil-related products were particularly mentioned by panelists, while a number of firms also commented on exchange rate fluctuations, Markit added.

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