Industrial Production in Brazil Falls to Lowest Level in Four Years

Brazilian industrial workerBrazil’s industrial production dropped last June, remaining at 39.6 points from a previous 48.4 points in May and 46 points in May 2013. This is its lowest level since the time series began in 2010, reports the Industrial Survey released by the National Confederation of Industry (CNI).

Besides the output decline, the survey found other decreases in the number of employees and capacity utilization, and a build-up in inventories. CNI admitted that the World Cup did play a role, but said the worsened figures have also resulted from other factors, and chiefly reflects a worsening of an existing downward trend.

The number of industry employees dropped from 46.8 points in May to 45.2 in June. Capacity utilization reported a milder drop, standing at 68% as against 71% in the previous month and 72% in the previous year. There again, the result was the worst since the beginning of the monthly series.

CNI economist Marcelo Azevedo explained the methodology is focused around a dividing line at 50 points. When such indicators as output and employment depart too far from this level, it reflects a negative scenario.

“What caught our attention was the extent of the decline in production. The figure was well below the dividing line, showing a marked decline that started in industry and spread out. And we found a similar trend in the number of employees,” he said.

According to him, there is a fear that this scenario could create a global impact. “This industrial slowdown tends to spread into the overall economy via employment,” he said.

According to Renato da Fonseca, CNI Research and Competitiveness manager, “the World Cup did have a negative impact on demand for industrial production, but the industrial performance has been showing signs of decline throughout the year.”

“No one could certainly expect such a sharp decline, otherwise stocks would not be building up. Industry began  2014 with higher expectations. As for June, it’s hard to tell the effect of the World Cup from what would have been a natural worsening in an existing critical industrial scenario.”

Among the main problems faced by the industry in the second quarter, business leaders heard by the survey cited the high tax burden (mentioned by 54.5%), a shortage in demand (40.7%), the fierce market competition (31.3%), the cost of raw materials (25.4%) and the shortage of skilled workers (22.6%).

Despite the poor results, the expectations for increases in demand in the upcoming six months was moderate at 55.2 points, and the expectations for export amounts for the period stood at 49.7 points.

Brazil’s Geography and Statistics Institute (IBGE) had reported earlier this month that the total employed persons in industry dropped 0.7% in May compared to April.

The rate has had its second consecutive fall, having shrunk 0.4% from March to April. Year-to-date, the decrease was 2.2%, and the annualized growth rate for the past 12 months was -1.7%.

Compared to May 2013, there’s an even larger gap – -2.6%, with decreases reported for 13 out of the 14 states surveyed by IBGE, most markedly in São Paulo (-3.7%), Rio Grande do Sul (-3.8%), Paraná (-4.0%) and Minas Gerais (-2.1%).

Considering the 18 surveyed industrial sectors, 15 have been reported with lower employment rates in May 2014 compared to the same period last year. The sharpest decreases were seen in metal products (-7.4%), footwear and leather (-7.9%), transport (-4.3%), and electronic and communications equipment (- 6.1%).


President Dilma Rousseff intends to raise the discussion on the judicialization of Argentina’s foreign debt with the G20 (a group of the 19 largest world economies plus the European Union). Rousseff is opposed to the so-called vulture funds’ suing Argentina for US$ 15 billion, which she says has brought “instability” to sovereign debt negotiations.

“You might have heard that Brazil has hired a lawyer and filed a brief with the lawsuit as an amicus curiae to Argentina. This lawsuit has created instability in sovereign debt negotiations, which is very serious (…) and renders the whole debate as imponderable,” the president told journalists in an interview following the China-Brazil and CELAC Leaders’ Summit in Brasília.

The term “amicus curiae” is Latin for “friend of the court”, and is used to refer to someone who is summoned or offers to intervene in a lawsuit to which they are not a party in order to convey their opinion on the judicial matter.

“Raising it with the G20 is not just about complaining to them. It’s more about saying – look, there’s a very serious focus of instability in the whole system for negotiating sovereign debts, which by the way was a central topic in the G20 meeting in 2011, 2012, and part of 2013’s,” Rousseff said.

The so-called vulture funds won a court case in the US to receive the full amount of the debt bonds on Argentina’s 2001 default. These bonds were bought at low prices from investors who refused to accept a debt restructuring proposal in 2005.

Rousseff advocated clear rules for negotiating foreign debts as a way to ensure stability of the international financial system. She noted that in the case of Argentina, 92% of all creditors agreed to restructure the government debt without taking legal action to seek the full amount.

“We support financial stability. We think that some time in the future any country, as has been the case with Greece and other European countries, may need to negotiate their sovereign debts, so we want to have clear rules there. You can’t simply carry out negotiations all the way through and suddenly have all the deals dismantled,” she criticized.

Argentina’s President Cristina Kirchner thanked the BRICS (Brazil, Russia, India, China, and South Africa) and UNASUR (Union of South American Nations) for their support regarding the vulture funds. She also called for an end to what she called “international financial looting”.


The President of China, Xi Jinping, proposed the creation of two funds totaling US$ 25 billion and a special credit line of up to $10 billion for Latin America and Caribbean.

Xi Jinping is also behind the proposed creation of a China-Latin America and Caribbean Think Tank Forum which should convene the region’s Foreign Ministers for the first time in January 2015 in Beijing.

President Dilma Rousseff announced China’s proposals for “closer relations with Latin America” after the China-Brazil and CELAC Summit with leaders from Latin America and the Caribbean on Thursday, July 17, in Brasília.

One of the funds will provide US$ 20 billion to finance infrastructure projects, with a start-up capital of US$ 10 billion. Another fund for cooperation in development areas (to be defined) will rely on US$ 5 billion.

According to the president of Venezuela, Nicolás Maduro, the terms and conditions for access to resources proposed by the President of China should be defined at the forum’s convention in January.




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