|
Brazil’s economy contracted in the third quarter for the first time since early 2009, falling short of expectations yet again as plunging investment underscored eroding confidence in what was recently one of the world’s most promising emerging markets. |
The economy shrank 0.5% between July and September from the prior three months, government statistics agency IBGE said yesterday, missing forecasts in what has become a disappointing routine over the last three years.
Gross domestic product had been expected to drop 0.2%, according to the median forecast of 40 economists polled by Reuters.
The weak quarter reinforced a dimming economic outlook for Brazil, which has struggled to contain inflation and stay competitive in recent years, tarnishing the reputation earned with a decade of robust growth.
A full-blown recession remains unlikely in Latin America’s largest economy, but the slowdown increases the odds of weak growth and a possible credit rating downgrade next year, when President Dilma Rousseff is expected to seek re-election.
So far the country’s sturdy job market has insulated most Brazilians - as well as Rousseff’s popularity - from the sluggish economy. But consumer prices have climbed faster than wages for most of the past year, sapping shoppers’ appetites.
Glancing at the bustling bars of Rio or the packed streets of Sao Paulo one might not notice, but alcohol consumption and new car sales are falling this year for the first time in a decade.
Brazil’s toughest month this year seems to have been July, following widespread protests against poor public services.
The rebound since then has been fragile and economists are slashing forecasts for 2013 and 2014, which looks to be even weaker.
“The fourth quarter started weak and growth (this year) should be closer to 2.2% or 2.3% than the 2.5% we had before,” said Flavio Serrano, an economist at Espirito Santo Investment Bank.
“We were not able to grow despite various economic stimulus measures ... due to a macroeconomic imbalance with little production and a lot of consumption.”
The stagnation in Brazil contrasts with major emerging-market peers such as Mexico, India and China, where economic growth recovered between July and September after disappointing in the first half of the year.
Brazil is out of step due largely to heavy government stimulus over the past year that is starting to lose steam.
The tax breaks and cheap loans unleashed by Rousseff have yielded meagre results, and their withdrawal is now clouding the outlook for carmakers and furniture factories.
Public spending grew 1.2% in the third quarter, the economy’s strongest driver of new demand, but officials have warned there is no room for more stimulus as tax revenues dry up and the government misses budget targets.
That leaves Rousseff without much fiscal firepower at the end of her first term. Next year promises to be a handful for the president, as she juggles preparations for hosting the World Cup, skepticism from business leaders and a likely withdrawal of monetary stimulus in the US.
Evaporating growth - combined with new evidence of stagnation from January to March - reinforced expectations that Brazil’s central bank could soon wrap up a cycle of interest rate hikes aimed at cooling inflation.
Finance Minister Guido Mantega blamed the disappointing third quarter on weak global growth and tighter consumer lending from Brazilian banks, telling reporters yesterday he saw the economy on a “gradual growth trend.” The day before, Mantega forecast average growth of 4% per year over the next decade - a rate Brazil has not managed once under Rousseff - feeding criticism that the government is out of touch with investors’ concerns. Brazil’s economic growth capped a booming decade with 7.5% growth in 2010, the year Rousseff was elected.