Tags: brazil | spending | recession

Brazil Scrapes out of Recession on Government Spending

Friday, 28 Nov 2014 09:59 AM

Brazil's economy crawled out of a recession in the third quarter as public spending rose before presidential elections, suggesting growth could be short-lived as the government plans to tighten its budget.

The economy grew 0.1 percent in the third quarter from the previous period, resuming expansion after two consecutive quarters of contraction, government statistics agency IBGE said on Friday. The result missed the median forecast of 0.3 percent growth in a Reuters poll of 36 analysts.

Third-quarter expansion was mostly driven by a steep 1.3 percent increase in government spending. That stimulus is set to end as newly re-elected President Dilma Rousseff seeks to restore market confidence and avoid a credit-rating downgrade.

"Brazil is limping rather than leaping out of recession," said Neil Shearing, chief emerging markets economist at London-based firm Capital Economics.

Brazil's economy has disappointed since 2011, growing less than half its annual average in the prior decade. Global demand for the country's commodities has cooled, inflation has remained stubbornly high and investor sentiment soured due to repeated, often erratic, government intervention in the private sector.

During the third quarter of 2013, Brazil's economy shrank 0.2 percent.

"Technically, yes, we moved out of recession. But really, it's stagnation," said Jose Francisco de Lima Goncalves, chief economist at Banco Fator.

Consumer spending, which represents nearly two-thirds of the world's seventh-largest economy, failed to grow for a third straight quarter, dropping 0.3 percent between July and September from the previous quarter.

Investments also grew, posting their first increase in more than a year. Nonetheless, the 1.3 percent rise was not strong enough to make up for a sharp drop in the previous three months.

Economists have been pessimistic about the prospects for Brazil in the coming years. In addition to the budget cuts and tax hikes under consideration by Rousseff's newly announced economic team, markets expect big infrastructure projects could be slowed or scaled back due to a police investigation at state-run oil company Petroleo Brasileiro SA .

Sustained economic growth is essential to keeping public debt under control. Although Brazil's net debt is currently lower than 40 percent of GDP, interest rates are among the highest in the world at 11.25 percent.

© 2017 Thomson/Reuters. All rights reserved.

 
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Brazil's economy crawled out of a recession in the third quarter as public spending rose before presidential elections, suggesting growth could be short-lived as the government plans to tighten its budget. The economy grew 0.1 percent in the third quarter from the previous...
brazil, spending, recession
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2014-59-28
Friday, 28 Nov 2014 09:59 AM
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