Brazil´s Full Recovery Maybe Still Out Of Reach


Brazil still has many challenges to face in order to restore its full growth potential. Although from October to December of 2012, the GDP expanded 0.6 percent quarter-on-quarter, the strongest growth in eight quarters, it was still below markets expectations. More importantly, recent data updates are showing further deterioration of economic condition.

Indeed, in April, Brazil returned to trade deficit, as imports rose more than exports. Moreover, in May, business confidence continued a downward trend and in March, industrial production declined for the second consecutive month. To make things even worse, it seems that the government payroll tax cuts and tax breaks on the purchase of many consumption products are starting to lose steam. In April, consumer confidence dropped to the lowest level since August of 2011, as consumers became more pessimistic about the inflationary trend. Also, in March, retail sales expanded 4.5 percent yoy, well below the 12.5 percent registered in the same month of the previous year. As inflation is on the rise and in March, surpassed the 6.5 percent ceiling of the official target range, on April 17th, the Monetary Policy Committee (Copom) raised the benchmark Selic rate by 25 pp to 7.50, ending a cycle of monetary easing that was initiated in August 2011.


In the fourth quarter of 2012, the GDP expanded 0.6 percent qoq, mainly due a 1.1 percent rise in the services sector. Moreover, the economy grew 1.4 percent yoy up from the 0.9 percent expansion registered in the previous quarter.
 
In April, exports increased 5.4 percent to $20.63 billion from the $19.56 billion registered in April of 2012. Nevertheless, in the same period, Brazil posted a trade deficit of $994 million. 
     

In the 12 months through April, the inflation rate slowed to 6.49 percent, from 6.59 percent recorded in March. On April 17th, the Central Bank of Brazil increased the benchmark Selic rate to 7.50 percent in an effort to invert the inflationary trend.
 
In March, industrial output fell 3.3 percent yoy, mostly driven by a drop in production of pharmaceuticals, food, base metals and commodities. Moreover, in April, business confidence remained practically unchanged.

 

 


Duarte Ricardo | duarte.ricardo@tradingeconomics.com
5/17/2013 3:35:44 PM