Reuters/Brasilia
Brazil’s economy grew a slightly better-than-expected 0.1% in 2014, but sliding investment set the stage for what most observers expect will be a painful recession this year.
Last year’s modest expansion, as published by the government statistics agency yesterday, was still the worst performance for Latin America’s largest economy since 2009 and was largely shrugged off by investors focused on rising inflation and unemployment, and President Dilma Rousseff’s political troubles.
“We are in for a very weak 2015,” said Pedro Tuesta, an analyst with consulting firm 4Cast in New York.
Brazil’s meagre 2014 growth hanged on government consumption, a symptom of the country’s deepening imbalances.
While the 1.3% increase in public sector demand avoided a sharper drop in economic activity, it also boosted public debt, raising eyebrows at ratings agencies that threatened to strip Brazil’s debt of its investment-grade rating.
This year, with Rousseff changing tack and cutting public spending in order to regain investor confidence, Brazil’s economy is set to shrink 0.8%, which would be its deepest slump in 25 years, according to market estimates.
“2015 will be tough, with few chances of recovery and a worrisome adjustment of still-unknown scale,” said Jose Lopes Filho, president of the Brazilian association of distributors of manufacturing goods.
Economists warn investments are set for another steep drop in 2015 as state-run oil company Petroleo Brasileiro SA and several of its contractors grapple with fallout from a massive corruption scandal.
