Brazil’s manufacturing sharply slows in August on higher costs, lower demand

SAO PAULO (ICIS)–Brazil’s manufacturing PMI index for August sharply slowed down from July on the back of output falling for the first time in several months due to subdued sales, and elevated cost pressures, analysts at S&P Global said on Monday.

At 50.4 points in August, the manufacturing PMI stood just above the 50.0 point mark which separates expansion from contraction. It also represented a sharp slowdown from July’s 54.0 points.

Brazil manufacturing	August	July	June	May	April	March	February	January	December 2023	November	October	September
PMI index	50.4	54.0	52.5	52.1	55.9	53.6	54.1	52.8	48.4	49.4	48.6	49.0

Source: S&P Global

While the fall in production was described as slight, it marks a reversal from the growth trend seen earlier in the year.

New business growth slowed to a multi-month low, though some firms noted a shift from imported to domestic goods due to high shipping fees, suggesting a complex demand environment where domestic producers may be benefiting from import challenges, but overall demand remains subdued.

Export sales growth also softened, with improved demand from Asia and the Middle East offset by lower orders from the US and Mercosur countries.

Cost pressures intensified significantly, reaching a multi-year high. Companies reported increased prices for chemicals, fabrics, foodstuffs, packaging, plastics and transportation, often attributing these rises to currency depreciation.

Despite these challenges, manufacturers showed increased optimism about the year-ahead outlook. This positive sentiment was attributed to plant expansion plans, product diversification efforts, investment intentions, and forecasts of a potential pick-up in demand.

Employment continued to rise, albeit at a slower pace than earlier in the year. The moderation in job creation was linked to shortages of skilled job seekers and cost-cutting measures at some units. Nevertheless, the continued growth in employment allowed firms to reduce their backlogs of work.

“The Brazilian manufacturing sector suffered a loss of momentum in August, with surging cost pressures hampering firms’ ability to secure new business. Manufacturers even took the step of scaling back production and softened the pace of hiring in a bid to limit costs,” said Pollyanna De Lima, economics associate director at S&P Global Market Intelligence.

“Firms will be hoping for an improvement in the real exchange rate soon to help relieve some of the pressure on costs and lead to a revitalization of growth in the months ahead.”

Front page picture: Facilities operated by Brazilian polymers major Braskem in the state of Sao Paulo
Source: Braskem