Brazil’s manufacturing recovers but faces pressure on currency depreciation

RIO DE JANEIRO (ICIS)–Sales growth in Brazil’s manufacturing is being dented by challenging economic conditions, currency depreciation and order postponements after the floods crisis, analysts at S&P Global said on Monday.

S&P Global’s manufacturing PMI Index for Brazil recovered nearly half a percentage point at 52.5 points, remaining in expansion territory.

Any reading above 50.0 points shows expansion.

Brazil manufacturing	June	May	April	March	February	January	December 2023	November	October	September	August	July
PMI index	52.5	52.1	55.9	53.6	54.1	52.8	48.4	49.4	48.6	49.0	50.1	47.8

Source: S&P Global

REAL DEPRECIATION
The Brazilian real has been weakening for weeks, and it was already mentioned by the PMI survey respondents as one key challenge they faced in June, via higher prices for imports.

Crop losses resulting from the floods in the southernmost state of Rio Grande do Sul added to the issues.

As a result, inflation rates for both input costs and output charges reached 23-month highs.

“A sharper deterioration in suppliers’ delivery times, which is inverted before entering the PMI calculation, also boosted the headline figure. The latest improvement in the health of the sector was solid by historic standards,” said S&P Global.

“Underlying data showed that backlog clearing supported output growth in June, with some firms also noting better demand for certain goods. The rise in production was moderate, but this represented an improvement from the flood-related stagnation seen in May.”

Manufacturers also faced rising cost pressures driven by real weakness and crop losses, with prices for several items including coffee, cotton, dairy, fabrics, oil, pulp, rice, steel, wheat and zinc higher.

The overall inflation rate reached its highest in nearly two years.

Factory gate charges similarly rose to the greatest extent since mid-2022, as firms passed additional costs onto their clients.

Employment in the manufacturing sector continued to rise in June, attributed to investment in technology departments, new plant openings and efforts to increase production capacities.

Despite the challenges, investment in additional equipment, new product releases and forecasts of better sales fueled business optimism in June.

“The PMI survey showed that cost inflation, which ran at the highest since mid-2022, curbed growth of sales and production in June. Companies sought to protect margins by lifting selling prices to a substantial extent and tried to keep a lid on expenses by restricting input purchases and job creation,” said Pollyanna De Lima, economics associate director at S&P Global.

“Although exchange rate depreciation could have bolstered exports, the increase in prices seems to have eroded international competitiveness. External orders still rose, but only marginally.”