Brazilian Industry's Idle Capacity at Highest Since 2009

11/17/2014 - 08h35

The poor performance of the Brazilian economy has led industry to work at worrying levels of idle capacity.

With fewer working shifts and factories at a full stop, companies could increase dismissals.

A survey by the FGV (Fundação Getulio Vargas) shows that industry worked at an average of 28% of its idle capacity in October - the highest level since August 2009, when the country was recovering from the global crisis.

The data are surprising because the slowdown was registered soon before Christmas, when production should be at full throttle.

"The low production and businessmen's pessimism are unfavorable conditions for investment and hiring," says Aloisio Campelo, FGV's joint superintendent of economic cycles.

From January to October, industry still has registered a surplus (more hiring than firing) of 34,900 workers, according to data of Caged (record of the Labor Ministry).

But a forecast by LCA consultants shows that after the year-end layoffs , it is likely to reach December with 146,000 fewer workers.

If the scenario is confirmed, it will be the first negative result since 2009.

The stopped or underused production lines today are a reality in most of the economy. The FGV says that the most affected sectors are transportation material, electric material, metallurgy, clothing, footwear and food.

Even the food industry, which traditionally is little affected by fluctuations in the economy, has suffered with the low levels of production in factories.

Abia, which represents the sector, says the level of idle capacity reached 30% from January to September, 4% above the same period in 2011.

For the first time since 1998, production of the food industry will decline. The sector, which had projected a 4% increase in sales, showed a 0.4% decline in September.

"This negative result is the reflex of consumers' higher debts and the poor growth of income and employment," says Amilcar Lacerda de Almeida, Abaia's assistant director of the economy department.

Abicalçados, representing footwear producers, says factories are working at 25% to 30% of their idle capacity, above the historic average of 5% to 10%.

Abicalçados estimates that 250 million pairs of shoes will not be produced this year.

"The market is down and exports are doing poorly, especially because of Argentina," says Heitor Klein, executive president of Abicalçados.

In the aluminum sector, some companies have stopped producing to sell energy that they have already purchased on the free market, due to the high prices of raw materials.

"Industries haven't stopped producing because they want to, but because it has become unfeasible," says Milton Rego, executive president of Abal, which represents the sector.

Abal says the production of aluminum will total 950,000 tons this year, which represents idle capacity of 40%. In 2013, production reached 1.3 million tons.

Translated by THOMAS MUELLO

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