The coronavirus disease pandemic and efforts to prevent the spread of the virus had a severe impact on the Brazilian manufacturing sector in April, particularly with regards to output and new orders which fell at record rates.
Accordingly, firms scaled back employment and purchasing activity sharply, while business confidence slumped.
Despite steeply falling demand across the sector, inflationary pressures remained marked amid currency weakness.
Both input costs and output prices rose at above-average rates.
The headline seasonally adjusted IHS Markit Brazil Manufacturing Purchasing Managers’ Index™ (PMI®) fell sharply to 36.0 in April, down from 48.4 in March.
The reading signalled a substantial deterioration in business conditions in the sector, and one that was the steepest since the survey began in February 2006.
The previous record decline had been at the height of the global financial crisis in January 2009.
Record contractions were seen with regard to both output and new orders at the start of the second quarter, with company closures and other restrictions brought in to try and prevent the spread of the virus combining with a steep decline in demand.
The impact of COVID-19 in markets around the world meant that new export orders also contracted at a substantial pace.
Manufacturers responded to falling demand by cutting employment and purchasing activity.
Staffing levels decreased at the sharpest pace since June 2016, while the reduction in input buying was a new survey record.
Some respondents indicated that employment had been lowered as part of cost cutting efforts.
Input prices continued to increase at a sharp pace that was faster than the series average, with firms mainly linking higher input costs to currency weakness.
In turn, firms raised their selling prices markedly.
Supply-chain disruption remained a key feature of the COVID-19 pandemic, with supplier shutdowns and material shortages mentioned by panellists.
Lead times lengthened to the second-greatest extent in the survey so far.
Meanwhile, firms were generally reluctant to hold inventories given the fall in demand.
As a result, stocks of both purchases and finished goods declined.
Finally, business sentiment fell sharply for the second month running and was at a 49-month low.
While some firms expect a return to growth of new business and output once the worst of the pandemic has been brought under control, there were mounting concerns around the length of time it would take for conditions to return to normal. ■