As the National Statistics Office announced today, quarter-on-quarter growth in the Brazilian economy was a mere 0.2% in the first quarter of 2012 in seasonally adjusted terms, and was thus just as weak as in the final quarter of 2011 (based on downwardly revised figures). Whereas private consumption, with an increase of 1.0%, provided a substantial boost, investment tumbled by 1.8%, the steepest fall since Q1 2009 and a major factor behind overall weak growth. Due to a sharp slump in imports, net exports were positive.
Economic indicators for the second quarter 2012 fail to paint a clear picture so far. Industrial production in April fell by a seasonally-adjusted 0.2%, putting it marginally below the average first quarter level. With sentiment in the manufacturing sector currently on the subdued side, the coming months are not likely to see a strong pickup in production. By contrast, the development in private consumption is likely to remain postive. Sentiment among Brazilian consumers has improved appreciably since the beginning of the year, buoyed by the marked easing of inflationary pressure and the ongoing robustness of the labor market.
Overall, we expect business activity in Brazil to gather momentum over the remainder of the year. However, with the global economic backdrop remaining difficult, the pickup is likely to be weaker than we have been forecasting to date. Real gross domestic product will probably increase by 2.4% this year (previous forecast: 3.2%). For one thing, monetary policy is likely to have a stimulating effect: Since September 2011 the central bank has trimmed its key interest rate by a total of 400 basis points to the present 8.5%, a new all-time low. Further rate cuts are likely in the coming months. Secondly, recent exchange rate movements of the Brazilian real are likely to give a boost to export activity, especially if world trade picks up as we expect. Since early March the Brazilian currency has slipped almost 15% against the US dollar, with the exchange rate currently at around 2 BRL/USD. That is the lowest level for three years. The real is currently also tending on the soft side against other major trading partners. Since March the nominal effective exchange rate of the real has fallen by almost 12%.