Decline in Domestic Industrial Sectors, Primarily Attributed to Drop in Vehicle and Petroleum Goods Production
In a recent report by the Brazilian Institute of Geography and Statistics (IBGE), it was revealed that Brazil's industrial production experienced a decline of 0.5% in May 2025 compared to April. The primary factors contributing to this drop, particularly in vehicle and petroleum derivative production, have been identified.
The motor vehicle sector faced a sharp decline of 3.9%, the steepest among major sectors. This likely reflects weakening domestic demand and possibly disrupted supply chains or reduced new orders within the automotive industry. The petroleum and petroleum products output also dropped 1.8%, contributing significantly to the overall industrial decline. This reduction may stem from fluctuating crude oil processing, lower export demand, or adjustments in domestic energy needs.
Additional declines were observed in food products (-0.8%), beverages (-1.8%), and furniture (-2.6%), indicating broader weakness across manufacturing sectors. However, some sectors such as extractive industries (+0.8%), pharmaceuticals (+3.0%), rubber and plastics (+1.6%), and footwear (+3.2%) recorded gains.
Broader economic factors included a drop in new manufacturing orders and export demand, reduced purchasing activity, and conservative inventory reductions by firms, indicating cautious business sentiment and subdued production momentum. The improvement in supply chain conditions, evidenced by stabilizing supplier delivery times, suggests that supply issues were not a major constraint. Instead, demand-side weaknesses and cost pressures are likely culprits restricting production expansion, especially in capital and consumer goods manufacturing.
The report also highlights that 13 out of the 25 sectors surveyed during the period experienced contractions. Other sectors that saw declines include beverages production (-1.8%), clothing and accessories production (-1.7%), and metal products production (-2.0%).
Despite these challenges, it's worth noting that the extractive industries have seen a 9.4% expansion over the past four months, which could be a positive sign for the future. The growth in sectors like pharmaceuticals and chemicals production (+3.0%) also offers a glimmer of hope amid the overall decline.
The decline in Brazil's industrial production in May 2025 was primarily driven by significant drops in motor vehicle manufacturing and petroleum derivative production, which are linked to weakening demand, export challenges, and cautious business investment amid ongoing economic adjustments. The report serves as a call for continued monitoring and potential policy intervention to support these key sectors and foster a more balanced industrial growth.
[1] IBGE Monthly Industrial Survey Report, May 2025. [3] Brazilian National Confederation of Industry (CNI) Economic Outlook Report, May 2025.
The motor vehicle sector's 3.9% decline might be attributed to weakening domestic demand, disrupted supply chains, or reduced new orders within the automotive industry, all factors contributing to the industry's production drop. Moreover, the petroleum and petroleum products output reduction of 1.8% affected the overall industrial decline, potentially due to fluctuating crude oil processing, lower export demand, or adjustments in domestic energy needs.
