Latin America economic analysis for week of June 13, 2005

Latin America economic analysis for week of June 13, 2005

Brazil’s economy got a huge lift after the President’s chief of staff resigned amid bribery allegations. Jose Dirceu, President Lula’s Cabinet chief, said he was stepping down and returning to the lower house as a representative of the Worker’s Party. Dirceu has been engulfed in a swirl of scandal stemming from allegations that he bribed political officials for their votes. News of the resignation sent Brazil’s real up 0.8% to a two-week high and its 2005 gains against the dollar to 11.2%. Of all major currencies measured against the dollar, the real is the best performing. Meanwhile, it was reported that Brazil’s crude steel production was virtually unchanged last month. For the month of May, the country produced 2.756 million metric tons (mmt), a very small month-to-month gain of 0.2%. Year-to-date (YTD) figures put Brazil’s steel production at 13.444 mmt, a year-on-year (YOY) gain of 0.5%. May’s flat-rolled steel output stood at 1.738 mmt, a YOY decline of 13%. YTD figures stood at 9.358 mmt, a decrease of 1.5% for the same 2004 period. May longs production showed a YOY drop of 16.2% for a total of just over 628’000 mt. YTD longs output is 3.476 mmt, a YOY drop of 2.3%. In other Brazil news, it was reported that 212’450 new jobs were created last month and that bankruptcies declined over 12%. In Mexico, the economic news continues to inspire little confidence as waning US consumer demand continues to put the country through a slump. On the bright side, it was reported that Mexico’s overall April industrial output showed a 5.2% YOY increase led by motor vehicles and auto parts as well as machines. The improvement was largely attributed to the Easter holiday falling in March this year and thus April having more working days. Throughout the individual sectors, construction rose 6.5%, followed by manufacturing output with 5.5% and utilities with 1.1%. Previously, the manufacturing sector had shown a quarter-to-quarter 0.2% drop. The new manufacturing data should be somewhat heartening as it is a key sector of the Mexican economy. Mexico’s private spending rose 5.4% in the first quarter 2005 while manufacturing exports rose 7.8% for the first four months of 2005, a decline of 2% from the same period in 2004. Meanwhile, the strength of the peso has some worried. Since the end of March the peso has gained 3% on the dollar. This has weakened exports and slowed industrial production growth. Exporters are concerned that a strong peso is eating into their profit margins. Throughout the rest of the region, Colombia’s peso gained 0.3% per dollar, Chile’s peso rose for the fifth day in a row (0.6%), while Argentina’s peso rose a slight 0.1% per dollar. Argentina’s currency closed at a 13-month high on June 14.