Even by the standards of emerging markets, Brazil’s recovery from the global recession has been “robust”, says Martin Hutchinson on Breakingviews. Rising commodity prices have underpinned exports, while domestic demand has taken off too.
GDP rose by a China-like 9% year-on-year in the first quarter. That’s the fastest pace in 15 years, with private consumption leading the way. It climbed by an annual 9.3%, helped by unemployment at a record low of 7% and easier credit. Industrial production was up by an annual 18.6% in April, while retail sales have been growing at 9%. GDP growth is expected to hit 7% in 2010.
With the economy going gangbusters, there is scant spare capacity left in the economy and shortages are appearing. AmBev, the region’s biggest brewer, has had to import beer cans because local supplies have been exhausted. The central bank hiked interest rates by 0.75% to 10.25% last week. It is moving at an “aggressive pace” to temper growth amid fears of overheating, says Virgilio Castro Cunha of Bank of America. Inflation has exceeded the bank’s target of 4.5% every month this year and is now at 5.3%.
A “cooling breeze” is starting to blow, says Jonathan Wheatley on Breakingviews. Interest rates are set to keep rising. And government stimuli to cushion the impact of the global downturn, such as tax rebates for consumers buying cars and other durable goods, are being scaled back. The global picture is also a worry. Brazil “won’t be immune” to a renewed slide in global growth, says Morgan Stanley. That would be bad news for commodities, which are also threatened by a Chinese slowdown.
Brazil is “a top emerging market and the long-term picture remains bright”, says William Rocco of Morningstar. But the near-term outlook is hardly compelling. Risky assets, such as emerging markets, are especially vulnerable to global jitters. Meanwhile, the recently launched JP Morgan Brazil Investment Trust concentrates on domestic companies and so offers a safer way to invest than an exchange-traded fund tracking the commodity-heavy index. But the trust is currently on a small premium to net asset value – another reason to wait for a better entry point.