Brazil economy slips in January as industry slumps

Brazil's economic activity slipped in January, central bank data showed on Monday, as weak exports and a sharper-than-expected decline in industrial output offset buoyant retail sales. The central bank's IBC-Br economic activity index , a closely watched proxy for gross domestic product data, contracted 0.13 percent in January from December.
Economists also revised down their outlook for economic growth in 2012, a central bank survey showed on Monday, as the government struggles to revive the world's sixth largest economy with aggressive interest rate cuts and tax breaks. Still, analysts said the slight decline in economic activity in January was not as bad as some had feared, pushing up yields on interest rate futures contracts as investors bet the central bank might not have to cut borrowing costs as deeply as initially expected.
The central bank also revised down December's economic activity versus November to a rise of 0.49 percent from a previously reported increase of 0.57 percent. "This outcome is consistent with our scenario of very weak growth in 2012, around 2.3 percent," wrote André Perfeito, chief economist at Gradual Investments in São Paulo. "Industry is holding the economy back just like an anchor."
The central bank foresees 3.5 percent growth in 2012, while market analysts expect the economy to expand 3.23 percent, according to the median forecast in a central bank survey released on Monday. Latin America's largest economy grew only 2.7 percent last year, much less than its regional peers, as local manufacturers struggled with heavy taxation, high labour costs and a strong currency. Industrial output declined 2.1 percent in January from the month before, the statistics agency IBGE said earlier this month.
President Dilma Rousseff has set higher growth as one of her government's priorities this year after the economy slowed sharply in her first year in office. In recent weeks, the government exempted exporters from a tax on currency hedging in a bid to spur exports. Brazil posted a trade deficit of $1.29 billion in January, the worst ever on record for that month, dragged down by a 27 percent slump in exports.
The central bank has slashed its benchmark interest rate five times since August to bolster the economy, including a larger-than-expected cut of 75 basis points earlier this month to a two-year low of 9.75 percent. The bank has said the rate will likely fall to near the historic low of 8.75 percent in the coming months, which should help the economy gain momentum in 2012 and 2013.
The government's efforts to spur growth will likely show more results in 2013, the central bank's survey showed, as analysts revised up their estimates for growth next year to 4.29 percent from 4.20 percent. January's data would have been worse if it weren't for buoyant consumer demand, helped by near record-low unemployment. Retail sales grew 2.6 percent in the first month of the year, above all estimates in a Reuters survey. "Firming consumer confidence, abundant credit, and a very tight labour market bode well for private consumption going forward," said Goldman Sachs' economist Alberto Ramos in a note.