Brazil’s factories saw output slump in Septemberas the economy continued to slow, exacerbated by a sharp drop in carmanufacturing, and lending more weight to the central bank’s recent decisions tocut interest rates.
“Much of September’s fall was caused by the 11% month-on-month decline inautomotive production due to factory stoppages,” said Andre Macedo, an economistat the Brazilian statistics institute, IBGE.
Earlier, the IBGE said industrial production was down 2% in September, fromAugust, and that output fell in 16 of the 27 industrial sectors it surveys.Industrial production was down 1.6% from September 2010.
As Brazil’s economy continues to slow, the auto industry sent many of itsworkers out on holiday for periods of August, amidst a build-up in stocks.September’s decline in auto production was the largest fall since December 2008,when automotive production fell nearly 40% on a monthly basis, in the wake ofthe collapse of Lehman Brothers.
More broadly, the economic slowdown, lower domestic consumption and higherimports persisted in September. Industrial production had been expanding throughApril, but then stayed virtually stable until August, and began declining inSeptember.
The weaker industrial data lend further support to the Brazilian centralbank’s decision in late August to reverse course suddenly on monetary policy,despite inflation levels which remain stubbornly high. The central bank cutrates twice in August and September, having raised rates as high as 12.50%earlier in the year, and most economists expect another half-point cut at theend of this month.
“Brazilian GDP growth is quite likely to lose speed, but we do not expect thesame behavior for inflation figures,” said economists at BES Investimentos in anote. The tight labor market could continue to fuel domestic demand,particularly for services, they said.
The central bank had stressed the weakness in the global economy as its maincause for concern, but there’s growing evidence that the domestic economy isalso slowing sharply. The market now expects gross domestic product to expandjust 3.3% this year, less than half last year’s 7.5% post-financial-crisissurge.
The debate will continue to rage over the impact of this slowdown oninflation, which is currently running above 7% annually. The market expects thatto fall to around 6.5% by year-end, but see it remaining relatively high, at5.6%, next year. The central bank, on the other hand, sees inflation slidingdown closer to the target of 4.5%.
Alfredo Coutino, an economist at Moody’s Analytics who criticized the centralbank for raising rates earlier in the year, said much sharper rate cuts areneeded to avoid a hard landing. In a note, he said he expects a “minimum” ratecut of one percentage point, but that the recommended move to would be twopercentage points, to put the rate at a neutral 9.50%. 

Source: Dow Jones Newswires

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