BS: Brazil Growth Slowed in First Quarter as Investment Fell
Brazil’s economic growth slowed in the first quarter as President Dilma Rousseff, who is up for re-election in October, struggles to rebuild confidence that led to the biggest decline in investment in two years.
Gross domestic product increased 0.2 percent in the first quarter, the equivalent to 0.8 percent on an annual basis, down from a revised 0.4 percent in the last three months of 2013. The result was in line with the median estimate of 41 analysts surveyed by Bloomberg. Investment fell 2.1 percent in the quarter.
The central bank this week halted the world’s longest cycle of interest rate increases as it struggles to tame consumer prices without further jeopardizing growth. Faster inflation is reducing support forRousseff’s re-election bid as it weakens GDP. Amid the threat of power rationing, the government is again flirting with some stimulus to demand, according to Carlos Kawall, chief economist at Banco J. Safra.
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“It seems we’re going in the wrong direction again,” Carlos Kawall, chief economist at Banco J. Safra, said by phone. “The economy is weakening, and the lack of confidence and uncertainty regarding the elections and the possibility of power rationing are again being a drag in terms of investment.”
Swap rates on the contract due in January 2017, the most traded in Sao Paulo today, rose seven basis points, or 0.07 percentage point, to 11.75 percent at 10:48 a.m. local time. The real weakened 0.8 percent to 2.2430 per U.S. dollar.
‘Anemic Growth’
Brazil is “going toward very anemic economic growth with inflation still running at a high level,” Jankiel Santos, chief economist at Banco Espirito Santo de Investimento, said by telephone before the number was released. “The first figures for the second quarter are not pointing to a recovery.”
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The central bank on May 28 kept the benchmark Selic interest rate unchanged at 11 percent after lifting it a total of 3.75 percentage points over nine straight meetings. Analysts surveyed weekly by the central bank expect policy makers to continue tightening next year as inflation accelerates.
Growth will moderate in Latin America this year as inflation quickens and a slowdown in China reduces demand for raw materials, according to economists surveyed by Bloomberg. GDP grew less than analysts expected in the first quarter in Mexico, the region’s biggest economy after Brazil. Chile expanded at the slowest pace in four years in the first three months of the year, prompting the world’s top copper producer to cut its 2014 growth forecast to 3.4 percent.
First Downgrade
Brazil’s expansion will ease to 1.8 percent in 2014 from a revised 2.4 percent last year, according to the economists’ estimates. That would be less than the Latin American average for the fourth straight year and shy of the global average by nearly a full percentage point.
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In March, Brazil suffered its first downgrade in more than a decade. Standard & Poor’s said sluggish economic growth and an expansionary fiscal policy were fueling an increase in the country’s debt levels. It reduced the country’s rating to BBB-, one level above junk.
Rousseff’s administration boosted public spending, reduced payroll taxes and created a 679 billion-real ($305 billion) program to develop Brazil’s infrastructure and oil reserves in an effort to buoy the economy. The president also forced energy companies to cut tariffs in 2013 and restrained fuel price increases to reduce production cost.
Investors and business leaders doubt the government’s management of the economy given a lack of clear guidance and rules, said Roberto Padovani, chief economist at Votorantim Ctvm.
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‘Moving On’
Industry output declined 0.8 percent in the first quarter, while family consumption contracted 0.1 percent, according to the data released today.
“The main reason for this deceleration is basically confidence,” Padovani said by phone from Sao Paulo. Lack of “investment is really preventing the country from moving on.”
Industrial confidence dropped in May to the lowest point since 2009, according to data published by the National Industry Confederation. Consumer confidence also has plunged as Brazilians see their purchasing power erode, falling this month to the weakest level in more than five years, according to a survey conducted by the Getulio Vargas Foundation.
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A number of manufacturers are planning shutdowns in the second quarter, which will prompt a “sharp reduction” in industry output, Tom Linebarger, Chief Executive Officer of heavy-engine manufacturer Cummins Inc. (CMI:US), said in an earnings call on April 29.
Annual inflation quickened for the fourth straight month in mid-May, reaching a 10-month high of 6.31 percent as education, health care and housing prices increased. The central bank targets 4.5 percent inflation, plus or minus two percentage points.
