RIO DE JANEIRO -(Dow Jones)- Output at Brazil's mines and factories continued to slow in July as growth in Latin America's largest economy buckles under the weight of towering interest rates and a strong currency that has fueled a flood of cheap imports.
July's 0.5% growth in industrial production, which followed a 1.2% slide in June, was affected by "the greater presence of imported products and lower demand in the domestic market," said Andre Luiz Macedo, coordinator of the industrial output survey at the Brazilian Institute for Geography and Statistics, or IBGE. Higher interest rates and other measures aimed at reining in credit and tamping down domestic demand are being reflected in industrial production, Macedo said.
The figures continued a string of recent economic data pointing to an easing of growth in Brazil's economy, which has led many economists to revise downward their projections for gross domestic product in 2011. Combined with uncertainties about global economic growth, the data could serve as an impetus for the Brazilian Central Bank to end--and perhaps even reverse--the monetary tightening cycle started earlier this year.
The central bank will release its decision on interest rates after markets close Wednesday, with many economists expecting an end to the tightening cycle. Central bankers have raised the benchmark Selic base interest rate five times so far in 2011 to 12.5%, by far the highest interest rate among the world's major economies. Brazil's interest rates are a key factor in a flood of foreign investment inflows that have pushed the real currency to a more than 10% gain against the U.S. dollar over the past 12 months.
"The industrial sector continues to lag the performance of the overall economy due in part to a clearly overvalued [Brazilian real]," said Goldman Sachs in a research report. Industry's performance, however, does not accurately reflect Brazil's economy because "domestic facing sectors" are at much stronger levels, the firm noted.
Brazil's record-low level of unemployment is forcing companies to pay more to attract and keep a burgeoning work force, helping consumers to maintain their buying power despite higher interest rates and stiffer credit terms. But there are indications that monetary policy measures are taking effect.
"The pace of economic expansion has clearly downshifted from the strong above- trend pace recorded in the [first quarter of 2011]," Goldman Sachs said.
A dovish turn by Brazil'sCentral Bank, however, could be a mistake, said BES Investimentos. Weak performance by the country's industrial sector "should not be taken as a soothing message on inflation concerns. The song remains the same, " BES said.
Inflation was running at an annual rate of 7.1% through mid-August, well above the ceiling of the government's target range of 4.5% plus two percentage points. While recent inflation imprints have been subdued, prices typically jump in the fourth quarter of each year.
Source: www.nasdaq.com
July's 0.5% growth in industrial production, which followed a 1.2% slide in June, was affected by "the greater presence of imported products and lower demand in the domestic market," said Andre Luiz Macedo, coordinator of the industrial output survey at the Brazilian Institute for Geography and Statistics, or IBGE. Higher interest rates and other measures aimed at reining in credit and tamping down domestic demand are being reflected in industrial production, Macedo said.
The figures continued a string of recent economic data pointing to an easing of growth in Brazil's economy, which has led many economists to revise downward their projections for gross domestic product in 2011. Combined with uncertainties about global economic growth, the data could serve as an impetus for the Brazilian Central Bank to end--and perhaps even reverse--the monetary tightening cycle started earlier this year.
The central bank will release its decision on interest rates after markets close Wednesday, with many economists expecting an end to the tightening cycle. Central bankers have raised the benchmark Selic base interest rate five times so far in 2011 to 12.5%, by far the highest interest rate among the world's major economies. Brazil's interest rates are a key factor in a flood of foreign investment inflows that have pushed the real currency to a more than 10% gain against the U.S. dollar over the past 12 months.
"The industrial sector continues to lag the performance of the overall economy due in part to a clearly overvalued [Brazilian real]," said Goldman Sachs in a research report. Industry's performance, however, does not accurately reflect Brazil's economy because "domestic facing sectors" are at much stronger levels, the firm noted.
Brazil's record-low level of unemployment is forcing companies to pay more to attract and keep a burgeoning work force, helping consumers to maintain their buying power despite higher interest rates and stiffer credit terms. But there are indications that monetary policy measures are taking effect.
"The pace of economic expansion has clearly downshifted from the strong above- trend pace recorded in the [first quarter of 2011]," Goldman Sachs said.
A dovish turn by Brazil'sCentral Bank, however, could be a mistake, said BES Investimentos. Weak performance by the country's industrial sector "should not be taken as a soothing message on inflation concerns. The song remains the same, " BES said.
Inflation was running at an annual rate of 7.1% through mid-August, well above the ceiling of the government's target range of 4.5% plus two percentage points. While recent inflation imprints have been subdued, prices typically jump in the fourth quarter of each year.
Source: www.nasdaq.com
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