WRAPUP 1-Brazil exports, factory output dip as real gains

Published 10/01/2010, 04:13 PM
Updated 10/01/2010, 04:16 PM

* Industrial output dips 0.1 pct in Aug vs. July

* Sept trade surplus down vs Aug on exports slip

* Strong currency pressures companies that export

By Luciana Lopez and Daniela Machado

SAO PAULO, Oct 1 (Reuters) - Brazil's industrial output unexpectedly dipped in August and the trade surplus slid in September, as the country's rapidly strengthening currency pressured export-dependent industries.

The Brazilian real closed below 1.7 per U.S. dollar on Thursday for the first time since September 2008 and has been a growing headache for the government ahead of Sunday's national elections. The currency has risen about 7.5 percent against the dollar since the end of June.

The gains led exports lower in September from August, according to trade ministry data on Friday, bringing the trade surplus to $1.093 billion from $2.44 billion in August.

In addition, industrial production slipped 0.1 percent in August from July , the fourth such tumble in five months.

"The two things are a bit related," said Zeina Latif, Latin American economist at RBS in Sao Paulo.

The drop in exports came as major economies abroad -- those likeliest to import industrialized goods from Brazil -- continued to struggle. Between sluggish growth in the United States and Europe, and the stronger currency making exports costlier, those industrial sectors that look for customers abroad got hurt, Latif said.

"You can't say the real's effect is neutral," she added. "And probably we're in a global cycle that will continue benefiting emerging economies. (Brazil's) currency will still be pressured."

The Brazilian government has railed in recent weeks against both the strength of the real and moves by other nations to weaken their own currencies, with Finance Minister Guido Mantega saying the world was in an international currency war.

Exports slid to $18.833 billion in September against $19.236 billion in August.

CONSUMER DEMAND FADING

But imports benefited, as Brazilian consumers, who helped power Latin America's largest economy out of a brief recession last year, have found goods from abroad cheaper to buy.

Imports climbed to $17.740 billion last month from $16.796 billion in August.

Lower consumer activity also helped push industrial production down 0.1 percent for August, below the 0.4 percent gain that was the median forecast in a Reuters survey. Production of consumer goods slid 0.2 percent month on month as durable consumer goods slipped 0.1 percent.

Industrial production climbed in the first quarter, as Brazil's economy grew at its fastest annual rate in at least 14 years.

But that growth came in part from tax breaks on consumer goods such as cars and home appliances, holdovers from the government's attempt to jump-start Brazil out of the global economic crisis.

Consumers rushed to stores in the first quarter before the breaks began to fade out, and stores responded by restocking their inventory -- perhaps overstocking, analysts said.

"A lot of the demand that they saw in the first quarter, I think people thought was a permanent rise in demand," said Tony Volpon, head of emerging market research Americas for Nomura Securities International. "This is still very much the hangover from the first quarter."

Yields on Brazilian interest rate futures contracts <0#DIJ:> fell on Friday. The yield on the contract due January 2012 , the most active of the day, slid to 11.44 percent from 11.5 percent as investors pared bets for eventual rate hikes.

Central bank policy-makers held the benchmark interest rate at 10.75 percent in September, pausing a tightening cycle that began in April from 8.75 percent. The bank has since said the economy is moving to a sustainable growth rate with low inflationary risks.

"Brazil is still on track to outperform most of the region and, indeed, most of the rest of the world," wrote Neil Shearing of Capital Economics to clients. "But as we suspected, overheating concerns have quickly become a distant memory and interest rates appear to be going nowhere for the time being." (Additional reporting by Rodrigo Viga Gaier, Denise Luna, and Samantha Pearson, Editing by Chizu Nomiyama)

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