The motor industry is feeling the effects of the slowdown, induced by the government's acquiescence in the central bank's high interest-rate policy. Domestic car sales have been feeble and factories have been shutting down. Analysts reckon that there are about 150,000 unsold cars on forecourts and in factory car parks. This is equivalent to two months' sales. Around 35% of the carworkers are now on unpaid leave as the industry halts production in an effort to clear the inventory.
Brazil's umbrella industrialists' association, Confederação Nacional da Indústria (CNI) last week lowered its forecast for GDP growth this year to 1.5%. It said that the economy was stalling. At the beginning of the year the CNI had forecast, conservatively, growth of 2% for GDP and 1.8% for industry. Now it is forecasting that industry will grow by just 1% this year.
Inflation in Brazil, as measured by the IPCA index, fell by 0.15% in June, the biggest decline since 1998. This was at the top end of market expectations (the range of guesses was +0.61% to -0.15%) and kindled hopes of a substantial cut in the benchmark interest rate at the Copom monetary policy meeting of the central bank on 22-23 July. The rate is currently 26%.
The main reasons for the fall in inflation in June were cheaper food, thanks to the bumper harvest, lower fuel prices, and weak consumer demand, which prompted retailers to cut prices to boost volume. So feeble are car sales that 35% of the industry's workforce is now on annual leave. The biggest influence was the 5% fall in fuel prices.
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