June 3, 2019 / 1:39 PM / a year ago

UPDATE 1-Brazil manufacturing grinds to a halt, raises recession fears

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By Jamie McGeever

BRASILIA, June 3 (Reuters) - Growth in Brazilian manufacturing activity slowed to its weakest pace in ten months and virtually ground to a halt in May, data on Monday showed, the latest sign that Latin America’s largest economy may be slipping towards recession.

The IHS Markit Brazil manufacturing purchasing managers index fell to 50.2 in May from 51.5 the month before, barely above the 50.0 mark that separates expansion in the sector from contraction.

The third consecutive monthly fall in the headline PMI index shows that manufacturing is essentially stagnating and comes on the heels of data last week that showed the economy shrank 0.2% in the first quarter, the first contraction since 2016.

A second consecutive quarter of economic contraction would confirm a ‘double dip’ recession - albeit it a far shallower one - following the 2015-16 crash from which the economy has still not recovered.

“Brazil’s manufacturing sector headed towards stagnation halfway through the second quarter, with comments from survey participants highlighting a concerning political landscape, high unemployment, subdued confidence and weak economic performance in key export destinations for their goods,” IHS Markit’s Pollyanna De Lima said in a note accompanying the data.

Some of the report’s details pointed to a bleak outlook for the coming months. Factory orders shrank, exports fell for the sixth month in a row, optimism fell to its lowest level in over 18 months, and employment in the sector fell for the first time this year, IHS Markit noted.

Brazil’s manufacturing sector last contracted in June 2018, according to the IHS Markit PMI figures. Before that, the last time the sector was shrinking was in early 2017 as the economy was pulling out of the 2015-16 recession. (Reporting by Jamie McGeever Editing by Chizu Nomiyama and Nick Zieminski)

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