(Adds context, economists' quotes)
SAO PAULO, Feb 3 (Reuters) - Industrial production in
Brazil ended 2022 with a 0.7% drop on the previous year,
government statistics agency IBGE said on Friday, losing some of
the gains the sector recorded in 2021 after a pandemic-related
downturn.
IBGE said the retreat came on the back of rising interest
rates, which directly affected the cost of credit, as well as
high inflation hurting household consumption in Latin America's
largest economy.
Economists expect the gloomy scenario to continue after
output remained unchanged in December from November ,
matching the market's median estimate in a Reuters poll.
After starting 2022 with a positive tone due to government
stimulus measures, Brazil's industrial sector stuttered in the
second half of the year.
Andres Abadia, chief economist for Latin America at Pantheon
Macroeconomics, said the industrial recession would likely
continue in the first quarter due to "stiflingly high interest
rates, the lagged effect of lingering supply issues, and
less-supportive global growth".
When compared with the previous year, IBGE reported
production in December retreated 1.3% , slightly
below a 1.1% drop consensus.
William Jackson, chief emerging markets economist at Capital
Economics, said the fresh data showed the sector was a drag on
Brazil's economy in late 2022, with early signs indicating that
January was no better.
"Even so, it's clear that the central bank is focused on
growing inflation risks rather than weakening activity and we
expect interest rates to be kept on hold for most of this year,"
Jackson said.
The central bank on Wednesday kept its benchmark
interest rate at a six-year high of 13.75% and said it was
considering holding the policy rate at that level for longer
than markets expect due to fiscal risks.
Brazil's industrial output remains 2.2% below the
pre-pandemic levels of February 2020 and 18.5% below the May
2011 all-time high, IBGE said.
(Reporting by Gabriel Araujo
Editing by Ben Dangerfield)
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