March 10, 2020 / 1:05 PM / 25 days ago

UPDATE 1-Brazilian industry kicks off 2020 with solid 0.9% rise, but headwinds loom

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By Jamie McGeever

BRASILIA, March 10 (Reuters) - Brazilian industry got the year off to a solid start, official figures showed on Tuesday, with output rising in January for the first month in three and at its fastest pace since August.

Industrial production in Latin America’s largest economy rose by 0.9% in January from the previous month, government statistics agency IBGE said on Tuesday, faster than the 0.6% median forecast in a Reuters poll of economists.

That was the strongest rate of growth since the 1.0% monthly expansion in August last year, and was driven by growth in three of the four main economic categories and 17 of the 26 activities covered in the survey, IBGE said.

The figures will be a relief to government officials and policymakers following the difficulties of 2019, when industrial output fell for the first time in three years and was a major contributor to the economy’s weakest growth in three years.

But economists say the relief may be short-lived.

“We expect the long underperforming industrial sector to suffer the headwinds of lower global growth and trade due to the economic and social impact of the COVID-19 outbreak,” said Alberto Ramos, head of Latin American research at Goldman Sachs.

Disruption to international supply chains could hit domestic industry, he added.

“On the positive side, the sector should benefit from the continuation of accommodative financial conditions and a competitive currency,” Ramos said.

Capital goods production rose 12.6%, breaking a sustained run of weakness that had seen it fall almost 15% since May last year, and marking the biggest monthly rise since June 2018, IBGE said.

Among specific sectors, the most positive drivers in January were the production of machinery and equipment, which rose 11.5%; autos and car parts, which rose 4.0%; metals, which rose 6.1%; and foodstuffs, which rose 1.6%, IBGE said.

Still, the bigger picture shows Brazilian industry has a long way to go. Production fell 0.9% from January last year and is still 1.0% down on a rolling 12-month basis. More alarmingly, it is still down 17.1% from its peak in May 2011. (Reporting by Jamie McGeever, Editing by Nick Zieminski)

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