Loading ...News - Brazil Emerges From Recession, Led by Domestic Demand
Sept. 11 (Bloomberg) - Brazil’s gross domestic product grew more than analysts forecast in the second quarter, pulling the economy out of its first recession since 2003 thanks to rising domestic demand.
Brazil’s economy expanded 1.9 percent from the previous quarter, the statistics agency said today in Rio de Janeiro. Analysts expected 1.7 percent growth, according to the median estimate of 35 analysts surveyed by Bloomberg. GDP fell 1.2 percent from a year earlier, less than the 1.4 percent drop forecast. Goldman Sachs Group Inc. and BNP Paribas revised their 2009 GDP forecasts higher following the announcement.
Six straight months of job growth, coupled with tax breaks and record low borrowing costs, are driving consumer spending, helping Latin America’s largest economy rebound from the global financial crisis faster than was previously expected.
“The significant growth in family consumption shows the economy is out of recession and ready to expand,” Newton de Camargo Rosa, chief economist at Sul America Investimentos, said in a telephone interview. “Entrepreneurs are starting to realize demand growth is sustainable and will resume investment plans, which will also contribute to growth.”
Brazil is the latest Group of Twenty economy to emerge from recession, after the German and French economies unexpectedly grew in the second quarter, bringing an end to their worst slumps since World War II. Germany, the euro region’s largest economy, and France, the second largest, both expanded 0.3 percent in the period.
Rebound
Following the announcement, central bank President Henrique Meirelles said it was “highly possible” that Brazil’s economy would grow this year.
Finance Minister Guido Mantega said a “good part” of fiscal stimulus would be phased out by year-end, as the V-shaped recovery accelerates in the coming months. Public net debt as a percentage of GDP should fall to 38 percent in 2010, from a two- year high of 44.1 percent in July.
After rising 0.5 percent in the hour after the GDP report, Brazilian stocks fell for the first time in six days, as investors speculated earnings prospects may not justify the Bovespa’s 55 percent rally this year. Brazil’s benchmark stock index fell 0.2 percent to 58,401.17 at 2:18 p.m. New York time.
The real fell 0.5 percent to 1.8192 per dollar while the yield on the overnight interest-rate future due January 2011, the most traded today on Sao Paulo’s Bolsa de Mercadorias & Futuros, fell three basis points to 9.64 percent.
Domestic Demand
Spending by Brazilian families increased 2.1 percent in the second quarter from the previous three months, the statistics agency said, while investments were unchanged. Industrial output expanded 2.1 percent, while services increased 1.2 percent.
Brazil’s economy is rebounding faster than in most countries because of the strength of the domestic market, said Rosa, who helps oversee 12 billion reais ($6.59 billion) in investments. Weak demand for Brazilian exports is currently the main obstacle for faster growth, he said.
Brazil’s industrial production rose in July for a seventh straight month as companies restocked inventories to meet demand primed by tax breaks on cars, electronics and construction materials. As a result, retail sales growth quickened to 5.1 percent in the April-June period from 3.7 percent pace in the first quarter.
After peaking this year at 9 percent in March, unemployment has fallen steadily, to 8 percent in July. Job creation in July, at 138,402, was the fastest since September, when the global financial crisis forced layoffs.
Pipeline
With worker income growing, and the biggest impact from interest-rate cuts still to be felt, consumer spending should post further gains even as fiscal stimulus measures are phased out, said Alexandre Schwartsman, chief economist for Banco Santander SA in Sao Paulo.
“There’s other stuff in the pipeline, so sales won’t collapse,” he said.
Central bank policy makers left the benchmark Selic rate this month unchanged at 8.75 percent, signaling that five cuts from a two-year high of 13.75 percent in January was enough to stoke growth. Total outstanding loans rose 2.6 percent to a record 1.31 trillion reais in July, the fastest monthly expansion since October.
Since July, forecasts for economic growth next year have steadily risen to 4 percent from 3.5 percent, according to a weekly central bank survey of about 100 economists. Analysts expect the economy to shrink 0.16 percent this year, less than the 0.73 percent contraction estimated in May.
‘Firmed Up’
Paulo Leme, Goldman’s chief economist for Latin America, wrote in a note to clients that “impressive” economic growth in the April-June period probably “firmed up” in the current quarter. He said the economy will now end 2009 with zero growth instead of a previous forecast for a 0.4 percent contraction.
Itau Unibanco Holding SA, Brazil’s largest private bank, yesterday raised its forecast for growth next year to 4.8 percent from 4.3 percent.
Guilherme da Nobrega, an economist for Itau, said the government has space for additional fiscal and monetary measures to encourage growth should a tentative global economic recovery lose steam, reducing demand for Brazil’s commodity exports.
“The economy is on a lot more solid ground than it was six months ago,” said da Nobrega.
To be sure, the contribution to growth from exports may slacken, as the improvement in domestic demand increases imports and could tighten a trade surplus that reached $20 billion through August, 18 percent more than the first eight months of last year.
BNP Paribas chief economist Alexandre Lintz wrote to clients that the stronger-than-expected contribution from net exports means GDP should shrink only 0.3 percent this year, instead of a previously forecast 0.9 percent.
Still, falling wage mass and lack of additional stimuli will be “headwinds slowing down the pace of recovery” in coming months, he wrote in a note to clients.
Source: Bloomberg.
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