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Brazil’s manufacturing Purchasing Managers Index flat, but conditions seem worse

HSBC Brazil June 2013 Manufacturing PMI 2013-07-01Enlarge GraphThe weakest new orders in nine months and persistent inflation underline sluggish growth

The HSBC Purchasing Managers Indices (PMIs) gauge performance in the manufacturing sector. The indices are available for several emerging markets and have become valuable leading indicators that economists and analysts follow closely each month.

Brazil’s Manufacturing PMI for June 2013 came in at 50.4, which was the same reading as in May. While the index remains above 50, implying expansion, the rate is at a seven-month low.

Andre Loes, HSBC’s chief economist for Brazil, said, “For the second quarter as a whole, the index averaged 50.5 — the weakest quarterly performance since 3Q2012 — reinforcing the perception that after beginning the year on a relatively strong note, economic activity in the manufacturing sector lost momentum. New order growth eased further, showing no signs of a rebound in the coming months. There was also bad news on the inflation front.”

Slowing global trade

New orders also expanded minimally in June, at the slowest rate in nine months. Panelists from the survey mentioned very weak demand from European clients. Additionally, while not mentioned directly in the report, the slowdown in China is very likely dragging down economic performance in Brazil. In mid 2009, China became Brazil’s largest trading partner, dropping the United States to second place.

Persistent inflation

Inflation continues to be an issue despite the hawkish (aggressive) stance the central bank took by raising rates higher than consensus. While prices charged continued to accelerate, the costs accelerated at the fastest rate since May 2011.
Inflation can take a toll on exchange rates, which is bad news for foreign investors in Brazil, who have already seen almost 10% depreciation in the Brazilian real since mid May.

More job losses

The employment indicator posted losses for the third month in a row. Given the increased uncertainty of economic performance, hiring remains cautious, and while the report doesn’t mention layoffs, the slight contraction might imply that companies aren’t replacing staff lost to normal attrition.

On the bright side, the net job losses weren’t as marked as they were in May. Better payroll numbers in the consumer goods sector offset the decreases in investment goods producers.

Read on to see if Brazil is headed for recession in Why recession in Brazil is not imminent, but the short term will hurt, which will follow on Monday.

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