Industry retreats for the 3rd month in January, but pace of decline slows, shows PMI

Industrial activity in Brazil started 2023 with the third consecutive month of contraction, but the pace of decline slowed, reflecting smaller contractions in new orders and production, while the performance of international sales deteriorated further, according to the survey Index of Purchasing Managers (PMI) released this Wednesday (1st).

The S&P Global survey showed the PMI for manufacturing rose to 47.5 in January from 44.2 in December, remaining below the 50 mark that separates growth from contraction.

However, the reading is the highest in the current three-month period of the sector’s downturn, marking a weaker deterioration in business conditions.

“The business environment remains difficult, with industries encountering weak underlying demand and the deferral of existing projects due to an inflated market, high borrowing costs and public policy concerns,” said Pollyanna De Lima, Associate Director of Economics at S&P Global Market Intelligence.

“Some bright spots … have come from signs that contraction rates are at least losing steam,” he added.

Goods producers, according to the survey, indicated that weak demand, rising prices and fiscal uncertainty affected sales in January.

There was a drop in new orders for the fourth straight month, albeit at the weakest pace since October.

International orders were also constrained in the month by challenging economic conditions globally and recessionary fears, and international sales fell at one of the strongest paces in the survey’s 17 years.

The weakness in demand has led companies to reduce production volumes, amid still the cancellation and postponement of existing orders. However, the fall in output was the weakest in the current three-month period of contraction.

With regard to inflation, higher prices for imported food, metals, plastics and some components kept costs up, with the rate of inflation accelerating to a five-month high.

Some companies tried to pass cost increases on to their customers, but others offered discounts due to weak demand, competitive conditions and excess inventories.

The weak backdrop led to further job cuts in the manufacturing sector, but the contraction was marginal and at the weakest pace in three months.

Despite this scenario, optimism remained high, amid forecasts of recovery in demand, investments and launches of new products. However, the level of confidence was weaker than in December on concerns about public policies and high interest rates.