Brazil's economy stalls as consumers retreat
Published On Tue Dec 06 2011
Reuters News Agency
RIO DE JANEIRO—Brazil's economy ground to a halt in the third quarter, failing to grow as the euro zone debt crisis dragged on global growth and the country's indebted consumers retreated after three years of buoyant spending.
Latin America's biggest economy posted zero growth from the second quarter, the government said on Tuesday, underscoring a sharp slowdown this year from breakneck annual growth of 7.5 per cent in 2010 that far outstripped developed nations.
The slowdown hit sectors that had been bright spots in Brazil, with consumer spending—which makes up about 60 per cent of Brazil's economy—dropping for the first time since the end of 2008. Capital spending—considered a bellwether for future growth—fell, as did industry, which has struggled for much of this year partly due to Brazil's strong currency.
"The most shocking aspect of the number was the fact that all demand components contracted," said Mauricio Rosal, chief economist at Raymond James & Associates.
"The reversal...is very worrisome, and the worst is that there's not much that can be done about it—we depend on a solution to the problems in Europe."
The sputtering growth comes as Europe flirts with recession and China also shows signs of cooling.
Brazil is expected to grow about 3 per cent this year—better than crisis-hit Europe but well behind the pace of big emerging market rivals such as India and China.
The zero growth was in line with a Reuters poll of 25 analysts. The economy grew 2.1 per cent compared to the year-earlier period, IBGE said, below expectations of 2.4 per cent in the Reuters poll.
Citing signs of a severe global slowdown, Brazil's central bank has cut interest rates three times since August. President Dilma Rousseff's government also announced a slew of tax breaks last week to support consumption, reprising policies in the wake of the 2008 financial crisis.
But the government, which cut about 50 billion reais ($28 billion) from this year's budget to tackle stubbornly high inflation, has little room for further fiscal stimulus. The annual inflation rate has been stuck above a 6.5 per cent target ceiling since April even as the economy has cooled.
Monthly data from October and November suggest the slowdown is continuing and even deepening as the worsening euro zone crisis hurts demand for Brazil's exports, which are dominated by commodities such as iron ore and soy.
Industrial production figures for October showed factories cut their output for the third straight month.
Export demand was a rare bright spot in Tuesday's data, growing 1.8 per cent, although that still marked a slowdown from 2.3 per cent in the previous three months.
"The external sector helped, with growth in the export sector," said Mauricio Nakahodo, an economist with CM Capital Markets. "But that ends up being worrying -- having GDP dependent on trade in current conditions."
Adding to the grim tone, Brazil's relatively brisk growth earlier this year was revised down. The IBGE said the economy grew 0.7 per cent in the second quarter from the previous three months—down from 0.8 per cent—and by 0.8 per cent in the first three months, down from 1.2 per cent.
Although the country's job market has remained strong, Brazil's consumers appear to be approaching the limits of their credit-fueled spending spree of recent years. Their spending fell by 0.1 per cent in the third quarter from the second.
The industrial sector also shrank, down 0.9 per cent in the period, and capital spending fell 0.2 per cent.
While the central bank's first of three 50-basis-point rate cuts on Aug. 31 stirred doubts over its strategy, analysts have begun calling central bank head Alexandre Tombini's a potential trendsetter as the 17-nation euro zone threatens to dissolve.
Tombini says he believes inflation will slow in coming months from its annual pace in mid-November of 6.69 per cent, which could give the bank room to cut interest rates further in a bid to support flagging growth. |