High Interest Rates Grind Brazil's Factories To A Halt

(MENAFN- The Rio Times) Brazil's official statistics agency reports that industrial output fell by 0.2% in July 2025, continuing a four-month slump for the nation's factories.

This figure marks the longest period without industrial growth since early 2023 and leaves overall production 15.3% below its 2011 record, while sitting just 1.7% above pre-pandemic levels as measured by IBGE.

Industry declined across 13 of 25 tracked sectors in July. Metalwork dropped 2.3%, heavy vehicles fell 5.3%, printing and recorded media lost 11.3%, and beverages contracted by 2.2%.

At the same time, the pharmaceutical sector rose 7.9% and food manufacturing increased by 1.1%. These gains failed to offset widespread slowdowns.

The real story is the impact of high interest rates. Brazil's central bank keeps its Selic rate at 15% per year-a peak last seen in 2006-in a bid to contain inflation, which now stands at an annual 5.23%, already above the official target.



This tight policy raises borrowing costs for businesses and families, making it tougher to buy equipment, modernize plants, or even purchase everyday goods. With less money flowing through the economy, industrial orders shrink and producers cut output.

Adding to this drag, many Brazilian factory owners watched US trade policy closely as new tariffs on exports approached in August. Some firms braced for weaker North American demand, holding back production even before any official change in rules.

IBGE officials say most of the slowdown traces mainly to domestic interest rates, not international trade-at least for now. From April to July, Brazil's overall industry shrank by 1.5%-a stark turnaround after a patch of mild expansion.

This puts the country's manufacturers in a tough spot: they face higher input prices, relentless borrowing costs, and uncertain foreign demand.

For business leaders and policymakers, keeping an eye on interest rates and trade policies will prove vital in the coming months. Decisions made now-on investments, hiring, and exports-will determine whether Brazil's factories stay stuck or finally rebound.
Key Figures and Regional Highlights
In the monthly comparison (July 2025 vs. June 2025), national industrial production declined by 0.2%. Among the fifteen regions surveyed:
Regions with significant declines:

• Paraná: –2.7%
  
• Bahia: –2.6%
  
• Minas Gerais: –2.4%
  
• Pará: –2.1%
  
• Mato Grosso: –1.6%
  
• Northeast region (aggregate): –1.1%
  
• Ceará: –0.3%
  
• Regions with growth:
  
• Espírito Santo: +3.1%
  
• Rio Grande do Sul: +1.4%
  
• Santa Catarina: +1.1%
  
• Rio de Janeiro: +1.0%
  
• Pernambuco: +0.9%
  
• São Paulo: +0.9%
  
• Goiás: +0.5%
  
• Amazonas (Manaus Free Trade Zone): No change (0.0%).
  

In the year-over-year comparison (July 2025 vs. July 2024), industrial production in Brazil edged up by 0.2%, with eight of eighteen regions posting increases. Notable annual performances:
Top annual gains:

• Espírito Santo: +14.5%
  
• Rio de Janeiro: +10.4%
  
• Largest annual declines:
  
• Rio Grande do Norte: –19.1%
  
• Mato Grosso: –14.6%
  

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