World Economy

Brazil Manufacturing Breaks Slump

Brazil Manufacturing Breaks SlumpBrazil Manufacturing Breaks Slump

Brazil’s manufacturing activity ended a three-month contraction in December as new orders picked up, though overall growth remained very slight, as President Dilma Rousseff kicked off a second term Thursday, vowing to tackle corruption and revamp the economy as her government reels from a series of setbacks.

The HSBC Purchasing Managers’ Index for the Brazilian manufacturing sector rose to a seasonally adjusted 50.2 in December from 48.7 in November. The 50 mark separates contraction from expansion, Reuters said.

The new orders index rose for the first time in nine months. Some businesses cited an increase in demand following Brazil’s October presidential election, with customers anticipating future price hikes, the survey showed.

Output shrank for the fourth straight month, but at the slowest pace over that time period. Still, a weak economy continued to sap demand for consumer and intermediate goods, according to the survey.

  Production Rise

Input and output prices rose, impacted by weakness in Brazil’s currency, which has lost nearly 13 percent against the dollar this year. High labor costs, poor infrastructure and a hefty tax burden still weigh heavily on Brazil’s manufacturers, whose lackluster performance has weighed on economic growth.

Brazilian industrial production is expected to post a 2.5 percent contraction in 2014, according to a central bank poll released last week. Economists in the poll predict economic growth of just 0.13 percent in 2014 and 0.55 percent next year.

Despite the slightly better industrial PMI data in December, “The outlook for the economy in 2015 remains weak,” said Andre Loes, chief Brazil economist at HSBC.

  President Vows

Brazil’s economy, once booming, has barely grown during Rousseff’s time in office, and her administration is embroiled in a multimillion-dollar graft scandal at state-owned oil giant Petrobras, AFP reported.

But the former guerrilla promised to face the scandal head on, vowing to punish anyone found guilty of illicit dealings.

“We are going to rigorously investigate everything that has happened,” the leftist Rousseff said, speaking at the ceremony attended by the US and Chinese vice presidents as well as 13 heads of state, most from Latin America.

“We must investigate and punish, but without weakening Petrobras or diminishing its importance,” she added, drawing warm applause at the ceremony at Brazil’s Congress.

The Petrobras scandal and the ongoing police investigation -- dubbed “Operation Car Wash” -- erupted just a few months before the election.

So far suspicion has fallen on 39 people, including former Petrobras directors and executives from construction firms, a network that allegedly laundered around 3.8 billion creamed off from inflated contracts to give kickbacks to mainly pro-government politicians.

 Petrobras stocks plunge

Petrobras is also facing legal action in the United States over investor losses emanating from the scandal that has seen the firm’s stock plunge, and hit its creditworthiness and ambitious investment plans.

The scandal – and poor economic performance – sparked mass street demonstrations during Rousseff’s first term.

Rousseff has also come under fire for Brazil’s sluggish economic growth, and though economists do not expect a major boost in 2015, she said reviving the economy was a top priority. “Brazil must return to the path of growth,” she stressed, after arriving at the ceremony in an open-top Rolls Royce.

“We’ll do this with the least sacrifice possible for the population, especially the most needy,” she said.

Growth, forecast to come in barely above zero in 2014, has slumped badly compared with 2010’s heady heights of 7.5 percent under Lula.

The world’s seventh-biggest economy boomed for a time under Silva, before suffering from a decline in Chinese-led demand for commodities just as Rousseff took over.

For her second term, Rousseff has appointed a new minister tasked with breathing new life into the economy: pro-market economist Joaquim Levy, who has already drawn up plans to make public purse savings.