Brazilian industry has a strong contraction in March – 04/03/2023 – Market

The contraction of the Brazilian industrial sector intensified in March and registered the strongest pace of decline in three months due to the reduction in the entry of new orders, according to the survey of Purchasing Managers’ Index (PMI, its acronym in English) released in this Monday.

Brazil’s manufacturing PMI, according to a survey by S&P Global, fell to 47.0 in March, from 49.2 in February, below the 50 mark that separates growth from contraction for the fifth straight month.

“Brazil’s manufacturing contraction deepened in March as the consumer goods segment added to the contraction in the intermediate goods and capital goods sectors,” said Pollyanna de Lima, associate director of economics at S&P Global Market Intelligence. .

According to the survey, panellists indicated that economic and political uncertainties constrained customer spending last month, which together with the weak general demand environment led to a further contraction in new order intake.

Producers responded by reducing the purchase of inputs and production volumes, this for the fifth consecutive month.

New export orders also declined in March, marking a 13-month decline, with survey participants citing challenging economic conditions globally.

In March, input prices continued to rise, although the rate was one of the weakest since data began to be collected in February 2006. Increases in prices for electronic components, fabrics and food were partially offset by reductions in costs commodities, freight, metal and plastic.

Selling prices, meanwhile, registered the strongest increase since September, as increased operating expenses were passed on to customers.

Against this backdrop, producers cut jobs in March, citing cost-cutting measures. Employment fell at the strongest pace of the year.

But confidence strengthened last month, with companies hoping for an improvement in demand and household purchasing power. Expansion plans, innovation and investments were also mentioned.

“While companies are anticipating better times ahead, they were not prepared to invest in their business capacity until recovery demand materializes,” added De Lima.

In the US, manufacturing sector hits weakest level in almost 3 years

US manufacturing activity fell to the lowest level in nearly three years in March as new orders continued to contract, and performance could deteriorate further amid tighter credit conditions.

The Institute of Supply Management (ISM) said on Monday (03) that its manufacturing PMI fell to 46.3 last month, the lowest reading since May 2020, against 47.7 in February.

Economists polled by Reuters had forecast the index falling to 47.5.

It was the fifth consecutive month that the PMI has dipped below the 50 mark. But the so-called hard data suggest that manufacturing, which accounts for 11.3% of the economy, continues to grow moderately.

Manufacturing expanded at an annualized rate of 4.5% in the fourth quarter, the US government said last week. Reports from last month also showed slight gains in orders for capital goods excluding aircraft in February, as well as in manufacturing production.

Rising borrowing costs as the Federal Reserve grapples with high inflation has cooled demand for goods, which are normally bought on credit. Demand may come under pressure after the recent failure of two regional banks, which stressed the financial sector.

Banks have tightened lending requirements, which could make it harder for small businesses and households to access credit.

According to an analysis by Goldman Sachs, manufacturing could be hit hardest by a decline in bank credit, as companies rely on loans for working capital or to finance capital expenditures. But the bank noted that bank credit-dependent manufacturing also “tends to have larger firms that, other things being equal, will have an easier time finding alternative sources of capital.”

Last month, the Fed raised its benchmark interest rate by 25 percentage points but has indicated it is about to halt increases in borrowing costs because of the turmoil in financial markets. The US central bank has raised its benchmark interest rate by 4.75 percentage points since last March, from a level close to zero to the current range of 4.75% to 5%.