Negative streak continues for Brazil’s industrial sector

The industrial sector continued its downward trend in February, with industrial output falling 0.2 percent from January, marking the third consecutive negative result for the indicator. Year-on-year, industrial output shrank 2.4 percent in February, accumulating a -0.2 percent variation over 12 months. 

“The start of 2023 has shown a drop in manufacturing and remains far from recovering the losses of the recent past,” said André Macedo, a research director at the Brazilian Institute of Geography and Statistics (IBGE).

Output fell in nine of the 25 sectors surveyed, particularly in key areas such as food products — which for example saw output drop 1.1 percent due to lower production of beef, poultry and pork, juice, and soy derivatives. 

“This decrease was influenced by the suspension of exports to China due to the case of mad cow disease at the end of February,” said Mr. Macedo. 

Chemical products and pharmaceuticals also contributed negatively to overall industrial output, dropping 1.8 percent and 4.5 percent, respectively. 

Among the 16 sectors that recorded an increase in production, the performance of extractive industries (4.6 percent), beverages (3.6 percent), and coal, petroleum products and biofuels (0.5 percent) stood out. 

The data released by IBGE also shows a slight improvement in the capital goods segment, with a 0.1 percent monthly expansion compared to the 4.2 percent drop in January — but the segment still accumulated a negative 1.7 percent result in the 12 months to February. 

Capital goods serve as an important economic thermometer, as investment in durable goods is a mark of the industry’s confidence to invest in the production of consumer goods such as clothing or food, which can be translated as confidence in future consumption. Likewise, a decline in durable goods production indicates a lack of confidence in the population’s ability to consume in the medium and long term.

The production of consumer goods fell by 0.3 percent in February despite rising 1.4 percent overall in the last 12 months. Activity is being penalized by high interest rates in Brazil, particularly in industrial production. The sector suffers from lower demand due to the population’s weakened purchasing power, especially for higher value-added products, and more expensive loans for entrepreneurs to invest in production.