Industry ends 2021 in a 'delicate condition', says sector survey.
"Despite starting 2021 with a solid base, the industrial sector ended the year in contraction," highlights the Purchasing Managers' Index survey by IHS Markit.
Camila Moreira, Reuters The Brazilian industry contracted in December, with lower sales and production volumes, ending 2021 in a "delicate condition," according to the IHS Markit Purchasing Managers' Index (PMI) survey.
The survey released on Monday showed that the index repeated in December the rate of 49,8 seen in November, with the PMI closing the last three months of the year with the worst quarterly performance since the second quarter of 2020.
A reading below 50 indicates a contraction in activity.
"Despite starting 2021 on a solid footing, the industrial sector ended the year in contraction. Companies reduced production and generally halted restocking efforts, as the anticipated demand recovery failed to materialize. With customers having sufficient products in their warehouses, new orders decreased in December," explained Pollyanna De Lima, Associate Director of Economics at IHS Markit.
The last month of the year was marked by lower sales and production volumes, with the respective sub-indices remaining in contraction in December.
According to IHS Markit, the drop in sales was due to weak domestic demand for products, as well as ample inventories among customers and problems in the automotive sector.
"If the central bank succeeds in reducing inflation next year, after successive periods of aggressive interest rate hikes, an improvement in real household wages could lead to a recovery in consumption," De Lima added.
On the other hand, there was a recovery in orders from abroad, which accelerated for the second consecutive month and at the strongest pace in over a year.
Nevertheless, domestic demand and price pressures led manufacturers to restrict purchases of inputs in December.
Input costs continued to rise in December, with companies citing higher prices for energy, raw materials, and transportation amid persistent supply chain problems, raw material shortages, and a strengthening dollar.
Nevertheless, the overall inflation rate weakened to a 17-month low, and some of the additional costs were passed on to customers.
In December, job creation in the industrial sector almost stopped, as companies were able to maintain maximum workloads due to weakened demand.
But business leaders in the sector were optimistic that demand and investment trends will improve in 2022, helping production growth.
According to the research, optimism was also linked to hopes for improved weather conditions and a recovery in the automotive sector. All of this led to a six-month high in the overall level of positive sentiment in December.
"But recent setbacks have made companies somewhat cautious in their assessments, with many adopting a wait-and-see approach to spending decisions," De Lima noted.
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