Brazil’s industrial performance has been a story of mostly declines, and fresh data for April points to a new drop in output.
The latest GDP reading had already flagged sluggish manufacturing in Q1. Now the Brazilian Institute of Geography and Statistics (IBGE) shows that the sector contracted by 0.6 percent in April from March. Monthly production has risen in only three of the past 12 months. Compared to April of last year, production fell by 2.7 percent.
The drop was also much greater than market expectations, which were for a 0.3 percent month-on-month decline.
IBGE research coordinator André Macedo says that the April scenario was one of widespread declines; 16 of the 25 industrial segments shrank, which had not happened since October 2022.
The biggest declines were in food (-3.2 percent), machinery and equipment (-9.9 percent) — a particularly important segment as it is linked to the expansion or modernization of industrial parks — and motor vehicles (-4.6 percent).
The auto industry is one of the hardest hit by the continuing effects of Brazil’s high interest rates and borrowing costs. If the segment had to halt production several times last year due to a shortage of parts and electronic components, especially semiconductors — a problem caused by the logistical disruptions of the pandemic — what is now holding back activity and increasing inventories is low demand.
Last week, President Luiz Inácio Lula da Silva unveiled part of a plan to energize Brazil’s auto industry, including credit lines for manufacturers and consumers, tax breaks, and incentives for nationalization of goods. Car prices could drop by as much as 11 percent as a result, officials estimate. But many of the measures have yet to be sufficiently fleshed out.
It is up to industries, for example, to come up with a plan to apply incentives to production and make some of their cars cheaper — one of Lula’s goals is to lower car prices so that “middle-class families can buy cars again.”
Manufacturing’s share of Brazil’s total GDP fell from 18 percent in 1990 to 12.9 percent in 2022. Any program and state policy aimed at reindustrializing the country must focus on this segment, which is the one that truly creates value-added products and better jobs.
Another important issue for industrial modernization is access to capital and, ultimately, credit. The manufacturing industry does not have its own instruments in the financial market, as the real estate and agribusiness sectors do; it does not have subsidized credit, and it pays more taxes than other sectors.
Therefore, it is necessary to create these credit channels, focusing on small and medium-sized industries that do not have capital in the traditional market.
With this in mind, Brazil’s BNDES development bank announced last week not only specific credit lines for the industrial sector, but also a council to develop a re-industrialization plan.
The bank will have a credit line of BRL 20 billion for innovation — i.e., projects focused on modernization — with an interest rate of 1.7 percent and a grace period of two years, in addition to other lines of up to BRL 4 billion for export industries, including food and automotive, with the same conditions that the BNDES offers to agribusiness.
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