Brazil Headed Toward Full-Year Growth
Forbes, Oct 18, 2009
Brazilian gross domestic product expanded by 1.9% quarter-on-quarter in the second quarter, the government announced on Sept. 11, with a smaller than expected year-on-year contraction of 1.2%. All signs point to Brazil having pulled out of recession without sacrificing prudent monetary and fiscal policies. Although the government was initially slow to acknowledge the impact of the crisis, it then reacted quickly and in a coordinated fashion to provide the appropriate stimuli to maintain or boost consumption demand, while also controlling inflation as well as public expenditure and debt.
Grounds for optimism. Policymakers and analysts have suggested a number of reasons for optimism:
--First, Brazil did not hesitate to implement anti-cyclical measures to counter the negative impacts of the global financial crisis, but did so with great prudence and effectiveness. Moreover, a solid banking sector with a strong state bank presence was central to maintaining market liquidity and access to credit.
--Second, the government was careful to maintain fiscal and monetary prudence, even raising interest rates in the midst of global and national economic contraction. Despite two quarters of contraction, macroeconomic fundamentals remained solid, reserves stayed at healthy levels, banking regulation remained robust and credit availability recovered quickly.
--Third, long-term trends indicate that systemic competitiveness is improving--in the World Competitiveness Report for 2009-10, Brazil jumped eight positions to rank 56 out of 133 countries. Brazil seems to have taken advantage of the crisis to improve international perceptions, although some indicators such as regulatory burden, labor market restrictions, corruption and tax system continue to be rated among the worst in the world.
--Finally, Brazil is benefiting from its large market size, and domestic consumption (both household and government) has been key to recovery, with quarter-on-quarter growth of 2.1% in the second quarter. Industrial output increased some 2% in the same period in response to consistently high demand.
Trends in macroeconomic data also show positive movements. Net public debt, which stood at 44.1% in July, is expected to fall to 38.0% by mid-2010; the primary surplus, which fell to about 1.0% of GDP, is expected to return to pre-crisis levels of about 3.5%. The benchmark Selic interest rate, at a low 8.75%, is not expected to rise in the coming months, with inflation forecast at under 4.5% for 2010. Unemployment also looked to improve after peaking in March at 9%, while job creation was back to pre-crisis levels by July 2009.