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UPDATE 1-Anfavea warns currency rally to hurt Brazil car exports
August 22, 2016 / 12:56 PM / a year ago

UPDATE 1-Anfavea warns currency rally to hurt Brazil car exports

(Recasts to add details on exports, context throughout)

SAO PAULO, Aug 22 (Reuters) - Brazilian car exports could suffer if an ongoing rally in the currency extends beyond 3.1 reais per dollar, a key industry group said on Monday, a sign manufacturers could seek government help to stay competitive in overseas markets.

While output and domestic sales are expected to fall 5.5 percent and 19 percent this year, respectively, exports are expected to surge 21.5 percent, thanks to the impact of a weaker currency in 2015 and during the first four months of this year, said Antonio Megale, president of Anfavea, which represents carmakers based in the country.

Still, he suggested that a 23 percent gain in the Brazilian real this year could put the brakes on shipments of Brazil-made cars and trucks abroad. A stronger currency usually makes a country’s exports more expensive abroad.

“The exchange rate at current levels still allows us to compete, but if the real appreciates further, I am sure we may have problems,” he said.

His remarks highlight the extent to which Brazilian manufacturers, saddled with bloated tax and labor costs, depend on the currency to compete globally.

Optimism that Brazil is near the end of a two-year political stalemate with the expected impeachment of President Dilma Rousseff this month has stoked a 23 percent rally in the real this year.

The currency rose slightly on Monday to 3.2065 reais to the dollar.

Auto output and sales in Latin America’s largest economy are forecast to drop sharply this year amid the harshest recession in eight decades and political turmoil that has hurt confidence.

The government and carmakers are discussing alternatives to replace a car industry promotion program that expires next year, and which includes a gradual opening of the sector to foreign competition.

“We need to open ourselves up to the world, but we cannot do that too quickly,” Megale said at the event. (Reporting by Ana Mano; Writing by Guillermo Parra-Bernal; Editing by Chizu Nomiyama and Bernadette Baum)

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