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  HOME | Brazil (Click here for more)

Brazil Teeters on Brink of Recession

SAO PAULO – Preliminary data on the performance of the Brazilian economy in the second quarter points to a threat that the Latin American powerhouse will re-enter recession in the first year of the presidency of business-friendly rightist Jair Bolsonaro.

The index of economic activity, seen as a leading indicator of gross domestic product, retreated 0.13 percent in the April-June period compared with the previous three months, Brazil’s Central Bank said.

If the official GDP figure set to be released Aug. 29 also shows a decline, the Brazilian economy will meet the technical definition of a recession: two consecutive quarters in negative territory.

Brazil’s GDP shrank 0.2 percent in the January-March quarter.

The discouraging growth numbers coincide with an unemployment rate of 12 percent as the sectors that have traditionally powered the Brazilian economy continue to suffer the after-effects of the sharp downtown in 2015-2016.

Industrial output fell 1.6 percent in the first six months of 2019, driven mainly by a 13.7 plunge in the extractive sector, which includes mining.

Even so, analysts at the leading banks with operations in Brazil, such as Itau-Unibanco, Bradesco and Santander, say they expect an improvement in the second half of the year.

“The truth is that growth will be around zero or slightly positive. I don’t think it will be negative,” Marcelo Kfoury, an economist with the prestigious Getulio Vargas Foundation, told EFE.

Kfoury distinguished between “structural problems,” related to productivity and investment, from transient factors such as declines in the mining sector and in exports of vehicles to neighboring Argentina, which is suffering from economic woes of its own.

So far, the response of the right-wing government to the poor economic data has been to urge patience.

“Give it a year or two, give an opportunity to a government that will last four years and is liberal democratic. Don’t work against Brazil and have a little patience,” Economy Minister Paulo Guedes says.

The opposition, led by the center-left Workers Party (PT), blames the slowdown on the doctrinaire free-market policies advanced by Guedes.

“What we are seeing is high unemployment, a fall in income, weak economic activity and the withdrawal of (labor) rights. Nothing is good, while Bolsonaro rides on a jet-ski to hide the chaos,” PT chair Gleisi Hoffmann said on Twitter, alluding to the president’s outing earlier this week on a lake in Brasilia.

The administration has taken steps to ward off recession by pumping 42 billion reais ($10.5 billion) into the economy with an eye toward boosting consumption.

Brazil’s Central Bank is also trying to stimulate spending, cutting its benchmark interest rate to a historic low of 6 percent, though the rates paid by consumers on loans and credit cards remain steep.

After taking office in January with a forecast of 2.5 percent GDP growth in 2019, the government has since lowered its prediction to 0.81 percent, in line with the expectations of private sector analysts.

The Brazilian economy contracted by 7 percent in 2015-2016, the country’s worst downturn in 70 years, followed by an anemic recovery with growth of 1 percent in both 2017 and 2018.

 

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