Brazil’s faltering economy has compounded jitters over an emerging-market slowdown. GDP expanded by just 0.2% in the first quarter of 2012 compared to the previous three months. Year-on-year, the economy grew by 0.8%, a three-year low. The GDP figure was skewed by unusually poor weather, which caused a sharp fall in agricultural output.
But most forecasters see the economy, which expanded by more than 7% in 2010, continuing to struggle after last year’s lacklustre 2.7%.
What the commentators said
The boom of recent years looks over, said Joe Leahy in the FT. The downturn in China is undermining commodity exports, while the industrial sector’s competitiveness has been undermined by a strong currency in recent years. A key driver of recent growth, consumption, has run out of steam.
A major debt boom – private-sector credit has doubled in five years – means people now “owe a lot and own too much stuff”, said Michael Shaoul of Marketfield Asset Management. A quarter of Brazilian households are spending over 30% of income on servicing their debt, according to consultancy MB Associados.
With the raw materials and consumer-spending tailwinds ebbing, “only productivity gains, and more savings and investment, can provide fresh puff”, said The Economist. But “those are nowhere to be seen”.
A major problem is that Brazil “has turned itself into a very expensive place to do business”. Running a factory in Brazil costs 48% more than in Germany, according to one Brazilian executive. The “absurdly complex” tax burden has jumped from 22% of GDP in 1988 to 36% today. The minimum wage is three times Indonesia’s. Red tape is rampant. Bolstering growth will require “another burst of reform”.