Odds that Latin Americaâ€™s largest economy contracted in the first quarter increased after March industrial production fell by more than double analystsâ€™ expectations.
Output tumbled 1.3 percent in March, its worst reading in six months. In the 12 months through March, Brazilâ€™s industrial production contracted for the first time since 2017, the national statistics bureau reported Friday.
Brazilâ€™s economy has suffered with a disappointing recovery since emerging from recession two years ago. Record-low interest rates havenâ€™t provided the hoped-for boost to the industrial sector, which since 2017 hasnâ€™t once posted back-to-back months of growth. With the government fiscally strapped, a wave of private-sector investment is needed to accelerate growth, but confidence has wavered since Brazilâ€™s President Jair Bolsonaro assumed power. Exports to Argentina are also down as the neighboring country sinks into recession.
The March industry data â€śdefinitely increases the riskâ€ť gross domestic product contracted in the first three months of the year, said Alberto Ramos, Goldman Sachsâ€™ chief Latin America economist. Edward Glossop, Latin America economist at Capital Economics, added that the first-quarter data is â€ślikely to be uglyâ€ť and it appears the economy may have posted a small contraction.
Swap rates fell across the board, with interest paid on the contract maturing in January 2020 dropping 2 basis points, as the weak economy suggests no scope for inflationary pressures.
What Bloombergâ€™s Economist Says
- â€śThe late Carnival was expected to drive some decline in industrial production versus year-ago levels -- but the plunge seen in the March reading goes beyond that. Prolonged industrial weakness despite the relatively weaker currency, record-low interest rates and subdued wage pressure is illustrative that the usual suspects are not sufficient to explain the low dynamism of the industrial sector.â€ť â€“ Adriana Dupita, Latin America economist
The March plunge in industrial production was led by a two-percent decline in output of consumer goods, particularly due to a drop in vehicles as Argentina imports fewer cars.
Stubborn, double-digit unemployment has also kept domestic demand low, hindering production, according to Flavio Serrano, chief economist at Haitong in SĂŁo Paulo.
From the same month a year earlier, overall output fell 6.1 percent, the most since last Mayâ€™s trucker strike ground the economy to a halt. The effect of the Brumadinho dam disaster in January continues to weigh on the mining sector, with output from extractive industries down 14 percent year-on-year, according to Andre Macedo, who coordinates the survey.