Industry Struggles as Brazil Economy Slows

By Sarah de Sainte Croix, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Employment and production statistics indicate a significant slump in Brazil’s industry sector (which accounts for 26.9 percent of the GDP) in recent months. Economists are pointing to the dramatic slowdown in the Brazilian economy, which has caused industry to stall and jobs in the sector to dry up.

A report by the IBGE (Brazil’s government statistics agency) released on March 13th, showed that industrial production indexes had fallen by a national average of 2.1 percent in just two months, between December 2011 and the end of January 2012, in nine of the fourteen states surveyed. Compared to the same time last year, the drop was even greater, at 3.4 percent on average.

According to the IBGE, the areas which suffered the biggest reductions were truck and automobile production, mining and quarrying (iron ore), textiles, apparel and basic metals. Employment statistics in the sector also confirm the downward trend.

According to data from the General Register of the Employed and Unemployed (CAGED), Brazil created just 19,609 new manufacturing jobs in February – a third of the number created for the same period last year – dragging the overall number of new jobs added across all sectors in February 2012 to the lowest levels in three years.

The news follows another IBGE report, released on March 6th, which revealed that the Brazilian economy had suffered a significant slowdown in 2011, growing by just 2.7 percent for the year, compared to 7.5 percent in 2010.

The slowdown in the economy is being attributed to two principal factors. The first was a reduction in private spending in the second half of last year, caused chiefly by the fact that spiraling interest rates had made credit increasingly expensive.

The second was the slowdown in the global economy as a result of the crisis in the Eurozone and North America, which took a turn for the worse at around the same time.

The later factor had a direct impact on Brazil’s industrial sector, because when consumers in Europe and North America stopped spending, the demand for Brazilian products and raw materials diminished, and industrial production began to slow.

The strength of the Real is also being cited as a major challenge to the competitiveness of Brazilian industry. The Real has shown an overall upward trend in the last decade making Brazilian goods increasingly expensive on the global marketplace.

Despite the worrying patterns, the Minister of Development, Industry and Foreign Trade, Fernando Pimentel, said last Thursday, at the opening of a new factory in Pernambuco, “It is true that there are difficulties, many of which come from unfair competition, exchange rates and interest rates – which are being corrected – but the construction of this plant is the proof that Brazil is not going through a process of deindustrialization.”

He later released an article, which was published on Sunday by the Folha de Saõ Paulo newspaper, saying, “The Federal government will resort to all mechanisms allowed in the [World Trade Organization’s] rules to cope with the changing times and respond urgently to the crisis triggered in the United States in 2009 and Europe in 2011.”