Brazil industrial recovery loses traction in November

SAO PAULO (Reuters) - Brazilian industrial output shrank in November due to a slowdown in automobile production, suggesting that a mild recovery in the manufacturing sector remains vulnerable.

Output from Brazilian factories and mines contracted 1 percent in November from a year earlier, government statistics agency IBGE said on Friday, falling below the 0.8 percent decline forecast in a Reuters survey.

The data follows a 2.5 percent year-over-year rise in October, revised up from a previously reported 2.3 percent. October's figures showed industry posting its first annual increase in more than a year and helped make the case that Brazil's manufacturers were beginning to emerge from more than two years of weak growth.

"The expected industrial recovery in the second half (of 2012) is solidifying, but in a non-linear way and at a slower pace," said Rafael Leao, an economist with Austin Rating in Sao Paulo.

Leao added that Brazil's manufacturers should see stronger growth this year, with business confidence readings still at healthy levels.

President Dilma Rousseff's government has attempted to boost the sector through a series of stimulus measures, trade barriers and tax breaks, although November's figures suggest a muted positive impact.

Unemployment in Brazil was close to an all-time low in November while real wages increased, piling additional cost pressure on manufacturers already struggling with low productivity, high taxes, and infrastructure bottlenecks.

"Whatever frustration with growth only increases the likelihood that more government measures are coming that are similar to what has already been done," said Flavio Serrano, a senior economist with BES Investimento in Sao Paulo.

The biggest contributor to November's backtrack in industrial output compared with the previous year was a fall in automobile production, which makes up more than one-fifth of Brazil's manufacturing output, IBGE said.

Car production fell 5.3 percent in November from October, as tighter credit and cooling demand overwhelmed the government's efforts to boost the sector.

Despite November's decline, a private report on Wednesday reinforced views that Brazil's manufacturing sector is still recovering.

The HSBC Purchasing Managers' Index for the Brazilian manufacturing sector fell to a seasonally adjusted 51.1 in December, from 52.2 in November, yet remained above the 50 mark that divides expansion from contraction for the third straight month.

November's industrial production contracted 0.6 percent from October, less than the 0.9 percent drop forecast in the survey. Estimates for the monthly drop ranged from 0.3 percent to 1.1 percent.

Growth in industrial production from October to September was revised to 0.1 percent on Friday, down from a previously reported 0.9 percent.

Of the 27 industrial sectors surveyed by IBGE, 16 contracted in November from October, including mining, oil and gas drilling and automobile production.

In broader industrial categories, output of capital goods, which were most heavily hit during the economic slowdown, shrank 1.1 percent for the month, the IBGE said.

Worries over mediocre growth in Brazil's economy and government intervention in the private sector have created an uncertain business environment, leading to the decline in capital goods investment, Serrano said.

Production of durable consumer goods and intermediate goods both fell 1 percent from October.

For details on the IBGE industrial output figures see: http://www.ibge.gov.br/home/presidencia/noticias/noticia_visualiza.php?id_noticia=2301&id_pagina=1

(Additional reporting by Rodrigo Viga Gaier, Diogo Gomes and Camila Moreira; Editing by Grant McCool and Chizu Nomiyama)