Tuesday, 6 January 2009

Brazil Industrial Output Plunges: Let´s Check the Numbers

The Brazilian statistics agency today said that industrial output shrank for a second month in November. The numbers look rather worrisome: production of two in every three manufactured goods fell last month; the output drop, on a year-on-year monthly basis, of 6.2 percent was the steepest since 2001; the 5.2 percent decline in the month-on-month seasonally adjusted indicator was the worst since 1995. Terrible.

We haven't obviously seen the impact of the stimuli implemented by the Lula administration (which began late in October and mainly consists of measures to ease the allocation of credit for manufacturers.) In the same token, the industrial production numbers somehow reflect the terrifying results affecting Brazil's trade balance -- exports of manufactured goods are taking the toll of the global recession. Imports from the U.S., Brazil's second-biggest trade partner, jumped 35 percent last year, compared with an mere increase in exports of 8 percent.

Brazil’s growth downturn story probably will be worse than most observers expect. According to the agency, 22 out of the 27 sub sectors surveyed showed declines. The agency measured the intensity of the downturn in October and November, -- an 8 percent drop in manufacturing output, -- showing how brusque the scenario is changing for companies. We had published in this blog excerpts of a report by Morgan Stanley in which they were seriously considering such a scenario for Brazil, that is, a violent economic deceleration taking growth close to zero from about 7 percent in a space of two quarters. Those who still believe that Brazil will escape recession are overly optimistic.

This also goes to the nation's policymakers, who are betting on strong counter-cyclical action to prevent the economy skidding into recession. Contrary to what many specialists believe and preach, Brazil is running down of the ammo necessary to avert a profound slowdown -- it lacks of the necessary ability and space to boost fiscal spending without incurring into debt financing, and the little impact on confidence that lax monetary policy will have. The next numbers that we should pay attention to is the numbers in the labor markets. A bigger-than-expected spike in urban unemployment in the last quarter of 2008 will ring the warning bells -- and may force Lula to think of new tools that help him avoid the inevitable.

(Note: don't forget that Lula is set to announce a series of new anti-crisis measures by Jan. 20. We will try to find out what they are all about ahead of the announcement for you, dear readers.)

1 comment:

  1. wow, very scary news! gotchma