Research Dept. News
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Monthly Report, num 359 - July-August 2012
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International review - Brazil
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Brazil: more disappointment
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Brazil's economy continues to slow down more than expected.
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Although macroeconomic indicators were already pointing to a slowdown in Brazil's economy, the growth figures for the first quarter were a disappointment for both Brazilians and foreigners alike. GDP grew by a mere 0.2% compared with the previous quarter, which represents a meagre advance of 0.8% in year-on-year terms. Moreover, if we take into account the fact that, in the fourth quarter of 2011, quarter-on-quarter growth was already 0.2% and 0.3% in the third, it is evident that Latin America's leading economy has run aground among pyrrhic growth without there being any sign of the upswing it so desires.
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Stimuli are yet to have an effect.
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By component and in year-on-year terms, of note is the debacle of investment, down 2.0%, and the 3.2% upswing in public expenditure. Regarding consumption, this picked up slightly compared with the previous quarter, boosted by the good tone in credit and employment. Exports also improved their figures compared with the fourth quarter of 2011 but this was not enough to offset the advance of imports (see the graph below). On the whole, we can observe both a marked decline in private domestic expenditure as well as an increasing lethargy in net exports, in line with the world's failing appetite for commodities.
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The real continues to depreciate.
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Brazil has therefore joined the widespread deterioration of global economic prospects and the latest activity figures merely increase doubts concerning the immediate future of the Amazonian giant. Although the confidence of Brazilian consumers and employment are holding firm, industrial production is still in negative terrain and the index produced by Brazil's central bank as an approximation of GDP posted a minimal increase of 0.22% compared with the previous month, in year-on-year terms representing a drop of 0.02% and its worst figure since the end of 2009. It's true that this indicator is not precise and usually differs from the definitive GDP growth figure but, even so, it is indicative of the significant downward risk for growth in the second quarter.
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This, together with the disappointing growth figures for the first quarter and the expectation that the slowdown in world economic growth will continue for a few months yet, has led us to revise downwards our growth forecasts for Brazil's economy both in 2012 and in 2013. Although we still think that economic activity will pick up in the second half of the year, when we expect the stimuli applied almost a year ago to start to have an effect, we have reduced our growth forecast from 2.5% to 1.6% for this year and from 4.1% to 3.8% for 2013.
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Given this evidence, the reaction of the Brazilian authorities was not slow in coming, quickly announcing further measures to boost their economy. These measures include greater credit facilities, barriers to imports and a new line of credit available to the states totalling 20 billion reais (around 7.7 billion euros) to be invested in projects related to highways, transport and infrastructure in general. The moderation in inflation will also help stimuli in the area of monetary policy (we expect a further reduction in interest rates in July), although the real's continuing weakness, hit by the rise in global risk aversion, will stop prices from correcting, keeping the increase at around 5% in 2012.
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