Tags: Brazil | growth | disappointing | economic

Brazil Economic Growth Disappoints Again, Defying President

Wednesday, 29 May 2013 11:27 AM

Brazil's economic growth fell short of forecasts once again in the first quarter as President Dilma Rousseff's numerous stimulus packages failed to aid manufacturers while consumers, scared by rising inflation, grew more conservative.

Even a record corn and soy harvest and a rebound in investment weren't enough to avoid disappointing gross domestic product growth of just 0.6 percent compared with the fourth quarter, according to government data released on Wednesday.

Investors and many analysts, who had expected 0.9 percent growth on average, immediately cut forecasts for an interest rate hike at a central bank meeting later Wednesday, saying a quarter percentage-point rise is now likely.

Some economists warned they would also cut their forecasts for full-year economic growth, which is becoming a kind of annual ritual in Brazil as the economy keeps failing to live up to the potential it showed last decade.

Rousseff has passed numerous tax cuts and incentive packages to try and stir Latin America's largest economy from a lull that began shortly after she took office in 2011.

The slowdown is partly global: other big emerging markets including Mexico, India and China have also struggled of late. But Brazil has been hard-hit by homegrown problems such as high salary costs, falling productivity and terrible infrastructure bottlenecks that Rousseff has so far failed to solve.

Industry shrank 0.3 percent compared to the previous quarter. One of the few reliable economic motors in recent years, household consumption, grew just 0.1 percent as a spike in inflation eroded the purchasing power of consumers.

The data "showed that the government policies, despite being aimed at stimulating the economy, are not yielding results because you have a big leak, which is industry," said Alex Agostini, chief economist for Austin Rating in Sao Paulo.

Many business leaders have called on Rousseff, a pragmatic leftist who faces reelection next year, to make far more ambitious reforms to the tax and labor code so that factories can regain their competitiveness at home and abroad.

The economy was buoyed by a strong harvest as agricultural activity grew 9.7 percent compared to the fourth quarter, its strongest quarterly performance since 1998. Investment grew 4.6 percent, which bodes well for a possible acceleration of the economy later this year.

INVESTMENT PICKING UP

David Rees, an emerging markets economist for Capital Economics in London, said the underlying data may show a welcome shift in the economy following worries in recent years that Brazilians were investing too little and spending too much.

"If Brazil is going to get back to the sort of growth rates of 5 percent which investors want to see, and everyone thought was the new norm just a couple of years ago, there needs to be a significant rebalancing toward investment," he said.

Prior to the data release, some analysts had warned the investment numbers would be inflated by growth in just one category: the construction of heavy trucks.

The economy grew 1.9 percent in the first quarter when compared to the year-earlier period, government statistics agency IBGE said. That was below expectations for growth of 2.3 percent in the Reuters poll.

Brazil's 2012 economic growth was not revised from its previously reported 0.9 percent.

© 2017 Thomson/Reuters. All rights reserved.

 
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Brazil's economic growth fell short of forecasts once again in the first quarter as President Dilma Rousseff's numerous stimulus packages failed to aid manufacturers while consumers, scared by rising inflation, grew more conservative.
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2013-27-29
Wednesday, 29 May 2013 11:27 AM
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