Brazil's manufacturing gains steam in January

SAO PAULO: Brazil's manufacturing output expanded at the fastest pace in nearly two years in January, a survey showed on Friday, raising hopes of a belated recovery in one of the most troubled sectors of Brazil's economy after another frustrating year.

The HSBC Purchasing Managers' Index for the Brazilian manufacturing sector rose to a seasonally-adjusted 53.2 in January from 51.1 in December, remaining above the 50 mark that divides expansion from contraction for the fourth straight month.

That was the highest reading since March 2011.

Brazilian factories have struggled to grow in the past three years as high local costs and chronically low investment levels made them more vulnerable to a global slowdown in manufacturing.

A flurry of cheap imports, fueled by a strong currency, also hurt local industries until at least the middle of last year.

Industrial output dropped 2.7 percent in 2012 from 2011, according to government data released earlier on Friday. 

The PMI survey suggests improving conditions as government measures slowly take effect.

The central bank cut interest rates ten straight times until October 2012, for example, and power rates were slashed by up to 32 percent last month.

"Brazil's manufacturing sector started 2013 on a positive note," said Andre Loes, chief Brazil economist at HSBC.

The survey gauge for manufacturing output rose for the fifth straight month in January to the highest in 23 months, with factories reporting stronger demand.

Manufacturers also reported a second straight rise in new export orders even as the Brazilian currency, the real, gained around 3 percent from last year.

With stronger activity, factories hired workers for the first time in ten months, the survey said.

However, after some false starts, Brazil's industrial recovery is not a safe bet, Loes suggests.

"The growth outlook for Brazil remains vulnerable to the fallout from uncertainty regarding electricity supply," Loes said, referring to concerns of a power rationing earlier this year after an unusually dry summer.