According to today's announcement by the National Statistics Office, the
Brazilian economy achieved q-o-q growth of 0.4%, in seasonally adjusted terms,
in the second quarter of 2012, a slight improvement on the pace of growth seen
at the beginning of the year, which was only 0.1% (based on downwardly revised
figures). There was a modest increase in private consumption to the tune of
0.6%, while government consumption was up by more than 1%. Investment, on
the other hand, was once again weak, falling for the fourth consecutive time, this
time by 0.7%.
No hard economic data, e.g. on industrial production, are available for the third
quarter as yet. The purchasing managers' index for the manufacturing industry,
however, is at least showing signs of slight stabilization. It edged up slightly in
July by 0.2 percentage points to 48.7 points, although this is still below the 50-
point expansion threshold.
On the whole, we expect to see a moderate acceleration in growth in the second
half of the year. Stimulus is likely to come, for one, from monetary policy. This
week saw the Brazilian central bank cut its key interest rate by a further 50 basis
points to a new all-time low of 7.5%, a move that is likely to signal the end of the
rate-cut cycle. In September 2011 the key interest rate was still sitting at 12.5%.
For another, the ongoing relative weakness of the Brazilian real is likely to
provide a fillip for export activities, particularly if the slight recovery in global
trade that we believe to be on the cards materializes. The Brazilian currency has
lost more than 16% against the US dollar since the beginning of March. The
exchange rate is currently just over 2 BRL/USD, the lowest level in more than
three years. The real also remains weak compared with the currencies of other
major trading partners. Its nominal external value has slipped by 14% since
March. Last but not least, fiscal policy is also expected to provide at least a slight
push to growth. Only recently, for example, the Brazilian government
announced measures to stimulate investment activity and private consumption.
Altogether, we expect to see real GDP growth of 1.5% this year. Among the group
of the ten largest emerging markets Brazil is thus likely to bring up the rear for
the second year running.