Brazil Recovery Gains Momentum

Brazil's economy continued its robust recovery in the fourth quarter as the country's services and industrial sectors reacted to heated domestic demand., WSJ 3/11/2010 10:28:53 AM

Brazil's gross domestic product expanded 4.3% in the fourth quarter compared with the fourth quarter a year ago, the Brazilian Census Bureau, or IBGE, said.

A series of moves last year by the government and the Brazilian Central Bank continued to pay dividends in the fourth quarter, stoking domestic demand. The central bank cut interest rates, while the government boosted spending and cut taxes on consumer goods.

Brazil's idustrial GDP jumped 4.0% year-on-year in the fourth quarter, while service sector GDP surged 4.6%. Massive agriculture industry, which struggled with poor weather and lower commodity prices, registered a 4.6% decline in fourth quarter GDP versus the same period of 2008.

The country registered two consecutive quarters of shrinking GDP--the technical definition of recession--in the fourth quarter of 2008 and first quarter of 2009.

The Brazilian Central Bank slashed 500 basis points off the benchmark Selic base interest rate, starting in January 2009. The monetary easing left the reference rate at its lowest-ever level of 8.75%. The bank's Copom rate-setting panel has maintained the Selic at 8.75% since last year, although a recent rise in inflation has increased expectations for a rate hike--perhaps as early as next week's meeting.

The government also granted tax breaks for car sales and big-ticket appliances such as refrigerators and washing machines in order to stoke domestic demand. The tax breaks are only now starting to expire.

The stimulus measures had the desired effect, increasing consumer access to credit and fueling domestic sales--including record auto sales of 3.1 million vehicles in 2009.

The strong rebound, however, was not enough to ward off a decline for the full year. The economy shrank 0.2% in 2009 compared with 5.1% growth in 2008. That was the first full-year decrease in GDP since a 0.5% decline in 1992, the IBGE said.

The economic slowdown also sapped investments, with the investment rate falling to 16.7% of GDP in 2009 compared with 18.7% of GDP in 2008.

Family consumption, meanwhile, increased 8.8% in 2009 to BRL1.97 trillion compared with BRL1.81 trillion in 2008, the IBGE said. Government spending rose 11% to BRL654 billion, up from BRL588 billion in 2008.

The IBGE also revised GDP figures from past quarters, showing that Brazil&a's emergence from the recession earlier this year was stronger than previously thought.

In the third quarter, GDP was revised upward to growth of 1.7% from previously reported growth of 1.3%. Second-quarter GDP was revised upward to growth of 1.4% from the previously reported 1.1% gain.

Meanwhile, the decline in first-quarter GDP was stronger than previously reported, shrinking 3.5% from the fourth quarter compared with a 2.9% decline previously reported.

Brazil Recovery Gains Momentum