Brazil’s economy shrank by 0.04% quarter-on-quarter between June and September. That reduced the year-on-year growth rate to 2.1%, a sharp drop from the 6.9% annual growth recorded at the same stage last year. With the latest surveys also lacklustre, another small contraction may be on the cards for the fourth quarter.
What the commentators said
Dwindling growth is a result of both recent moves to prevent overheating and the deteriorating global outlook, said Luciana Lopez on Reuters.com. The central bank raised interest rates five times this year, and now the slowdown in China and the European crisis are hitting demand for Brazil’s commodity-heavy exports. On the domestic front, “all demand components contracted”, said Mauricio Rosal of Raymond James & Associates. Government, capital and consumer spending all fell. Brazilian consumers “may be approaching the limit of their credit-fuelled spending spree” of recent years, said Lopez.
Another factor is that Brazil has a very low domestic savings rate, said Neil Shearing of Capital Economics. So it depends on foreign capital to fund its development. Foreign money helps companies invest, while it also tops up banks’ funds for consumer loans. So when capital retreats amid rising global risk aversion, Brazil is one of the first emerging markets “to feel the effect of strains in the global economy”.
Meanwhile, stubborn inflation may limit the scope for boosting growth. The upshot, said Rosal, is that the economy “depends on a solution to the problems in Europe”.