(Adds 2016 forecasts, Argentina trade deal)
By Alberto Alerigi Jr.
SAO PAULO, June 6 (Reuters) - Stronger exports are unlikely to keep Brazil's auto production from falling for a third straight year in 2016, an industry group said on Monday, as it slashed output and sales forecasts after new data showed automakers still stagnant in May.
Production of new cars and trucks in Brazil is now expected to fall 5.5 percent this year, automakers' association Anfavea said, cutting a prior forecast for a 0.5 percent rise.
The group's estimate for new auto sales in Brazil slid to a 19 percent drop from an earlier forecast for a 7.5 percent drop.
The only bright spot for the industry, an estimated 21.5 percent rise in exports, up from a prior 8.1 percent forecast, was not enough to offset the national slump, as costly labor and a lack of free trade accords hurt global competitiveness.
Brazil is expected to export roughly half a million vehicles this year, Anfavea said, down from nearly 843,000 a decade ago, despite a currency that flirted with 12-year lows this year.
Anfavea hoped Brazil would reach a new auto trade deal with Argentina by the end of this month, said association president Antonio Megale, adding that the priority was to keep up the current flow of vehicles to the neighboring country.
Automobile production in Brazil rose 3.2 percent and sales rose 2.8 percent in May from April, according to Anfavea data, as the industry sputtered despite two extra working days compared to the prior month. Compared to a year ago, auto output fell 18 percent and sales tumbled 21 percent.
Automakers in Brazil produced about 175,300 new cars and trucks last month, while sales totaled about 167,500 vehicles.
Until its current economic crisis, Brazil was one of the world's five biggest auto markets, with major operations for Fiat Chrysler Automobiles NV, Volkswagen AG , General Motors Co and Ford Motor Co. (Reporting by Alberto Alerigi Jr.; Writing by Brad Haynes; Editing by Daniel Flynn and Bernadette Baum)