As the national statistical office announced today, the Brazilian economy grew in the first quarter of 2011 by a seasonally-adjusted 1.3% over the previous quarter, well up on the growth seen in the two preceding quarters. Government consumption, along with investment, provided a substantial boost to growth, with the latter up 1.2% on the previous quarter. Private consumption, by contrast, was disappointing, with an increase of 0.7%. The appreciable rise in consumer prices since the second half of 2010 probably played a major role here. Exports fell by more than 3%. However, with imports plummeting by close to 9% at the same time, overall net exports made a positive contribution to growth. Blame for the poor export performance in the first quarter can doubtless be pinned in part on the strength of the Brazilian currency.
Brazil: Economy slowing after good start to year
The signs point to an appreciable slowdown in growth in the current quarter. Although the May purchasing managers’ index for the manufacturing sector inched up compared with the April survey, at 50.8 points it is still only a whisker above the expansion threshold of 50, signaling only a moderate expansion in overall economic activity. By way of comparison, in March the PMI had still been above 53 points. And the latest industrial production figures also point to more subdued growth momentum. In April production fell by a seasonally-adjusted 2.1% on the previous month, the steepest monthly slide since December 2008. However, this drop is put into perspective somewhat by the fact that, in the first quarter of 2011, overall industrial production had risen sharply. In February alone the increase was close to 2%. The recent drop can therefore probably be seen in part as a technical reaction to the previous strong rise.
All told, we do not expect the slowdown in the Brazilian economy to last. Overall, conditions for domestic demand are still pretty favorable. In the course of the second half of the year, things can be expected to ease on the price front. Together with the rosy situation on the labor market, private consumption can then be expected to pick up again appreciably. In April the unadjusted jobless rate stood at a mere 6.4%. This was the lowest April figure on record.
Against the backdrop of the current slowdown, we have revised our forecast for full-year growth down marginally from 4.5% to 4%.