By Camila Moreira and Rodrigo Viga Gaier
SÃO PAULO/RIO DE JANEIRO (Reuters) – Industrial production in Brazil advanced for the second month in a row in March, but ended the first quarter with a loss of strength and without recovering the losses of the beginning of the year, showing new signs of difficulties in recovering in amid tightening financial and monetary conditions, in addition to rising costs.
Production increased 0.3% in March compared to the previous month, the Brazilian Institute of Geography and Statistics (IBGE) reported on Tuesday, after a 0.7% gain in February.
The consecutive gains, however, do not recover the 2% loss recorded in January, and the industry was 2.1% below the pre-pandemic level of February 2020, according to the IBGE.
But still, the sector ends the first quarter with a gain of 0.3% over the last three months of 2021, the first quarterly increase after a full year of losses.
“There are very large losses in the industrial sector over the last few years. There is still a lot of room to recover”, said the research manager, André Macedo.
In comparison with the same period of the previous year, industrial production fell by 2.1%.
Expectations in a Reuters poll of economists were up 0.2% month-on-month and down 3.0% year-on-year.
The environment of inflation and high interest rates brings difficulties to the Brazilian industry, which as of the end of February still began to face the challenges presented by the Russian invasion of Ukraine, which affected energy and oil prices, raising costs.
Analysts estimate that the sector is unlikely to show a consistent recovery in the coming months, with the conflict in Ukraine delaying the expected normalization of supply chains.
“Complicating issues in supply, which is something more global, affected by the international market, and in domestic demand” are examples of factors that still make it difficult for the industry to resume, according to Macedo.
“Furthermore, inflation has been reducing disposable income and interest rates are rising and making credit more expensive. Also the job market, which has shown some improvement, still shows indices such as a mass of income that does not advance”, he added.
Seeking to boost the industry, at the end of February the government reduced the rates of the Tax on Industrialized Products (IPI) by 25% for all products with the exception of tobacco. At the end of last month, it increased the cut to 35%, as it will partially preserve the incentives for the Manaus Free Trade Zone.
In March, the greatest positive influence came from the 6.9% rise in the production of motor vehicles, trailers and bodies, in the second month of expansion, although it did not recover the decline in January.
Other chemical products (7.8%), beverages (6.4%) and machinery and equipment (4.9%) also contributed positively.
Among the negative performances, the highlight was the contraction of 1.7% in the production of food products, interrupting four consecutive months of highs.
Among the major economic categories, capital goods (8%), durable consumer goods (2.5%) and intermediate goods (0.6%) increased, while semi and non-durable consumer goods fell by 3. 3%.