Activity in Brazil's long-crippled manufacturing sector contracted at its sharpest pace in 3-1/2 years in March, a private survey showed on Wednesday, fueling expectations that Latin America's largest economy is slipping into a recession.
The HSBC Purchasing Managers' Index for the Brazilian manufacturing sector fell to a seasonally adjusted 46.2 in March, its lowest since September 2011, from 49.6 in February. The 50 mark separates contraction from expansion.
Persistently high inflation rates and higher import costs due to a rapidly depreciating local currency have weighed on global competitiveness, according to companies surveyed. While Brazil's real has weakened 17 percent against the dollar this year, the depreciation failed to translate into more export orders, which actually slowed from the previous month, the survey showed.
"Also threatening the outlook were a steep drop in incoming new work and the greatest fall in employment since July 2012," said Pollyanna De Lima, an economist with Markit.
High labor costs, poor infrastructure and a hefty tax burden still weigh heavily on Brazilian manufacturers, which have struggled to expand over the past four years.
That struggle is likely to get even tougher in coming months. A slowing economy and plunging consumer confidence have sapped local demand while government investment is dropping due to a fiscal austerity push.
Data from the survey showed a decline in new orders for consumer goods, intermediate goods and capital goods alike in March.
"Lamentably, there is little to suggest that we can expect any growth in the sector in the near-term," Markit's De Lima added.
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