January 5, 2017 / 4:57 PM / 2 years ago

UPDATE 1-Political doubt dampens recovery hopes of Brazil auto sector

(Adds details, forecasts)

By Alberto Alerigi

SAO PAULO, Jan 5 (Reuters) - Brazil’s auto sector has revised downwards its expectations for a rebound in vehicle sales this year to just 4 percent from the high single digits, the Anfavea automakers association said on Thursday, with political uncertainty and a recession still weighing on a market that saw sales slump 20 percent last year.

Anfavea President Antonio Megale said that while production of vehicles in Brazil would jump by 11.9 percent this year to 2.4 million units, sales of new vehicles would only creep up 4 percent to 2.13 million units.

Exports are forecast to climb 7 percent this year to 558,000 units, he said, helped by stronger sales to Colombia, Chile and Ecuador. A trade deal with Argentina helped boost exports last year by 25 percent.

“We had a forecast for a much stronger number (for sales) but we have reduced it to 4 percent because of the economic situation and, principally, because of the political environment that we are facing,” Megale told a news conference.

Megale had said late last year that he expected a sales increase for the industry as a whole this year in the high single digits.

Yet corruption allegations implicating Brazilian President Michel Temer and his party are casting doubt on his ability to remain in office and causing cracks in his coalition, amid growing calls for early elections.

That could destabilize a return to economic growth expected this year and derail Temer’s agenda of restoring fiscal discipline, which has been welcomed by business leaders and foreign investors.

The tepid rebound in auto sales this year comes after a painful 2016 as Brazil’s worst recession in more than a century slashed demand for new vehicles.

Anfavea said sales of newly produced cars in Brazil fell by 20.2 percent in 2016 to 2.05 million units, while production slumped 11.2 percent.

In a sign of recovery, vehicle sales in December rose by 14.7 percent month on month, the association said.

The recovery in sales is unlikely to spell a major return to hiring by the sector, Megale said, as the industry as a whole has about 50 percent idle capacity.

Anfavea’s more modest growth forecast for this year was in line with a prediction by the car dealership association Fenabrave that sales would grow 2.3 percent in 2017. (Reporting by Alberto Alerigi; Editing by Daniel Flynn and David Gregorio)

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