As the National Statistical Office announced today, the Brazilian economy grew in seasonally adjusted terms by a mere 0.3% on the previous quarter in Q4 2011, having slipped marginally by a revised 0.1% in the third quarter. Private consumption provided a substantial boost, up 1.1%. Investment, by contrast, rose by a miniscule 0.2%. Net exports were negative.
To date only “soft” indicators are available for the first quarter 2012, such as the purchasing managers’ index for the manufacturing sector. In February this moved up 0.8 points on the previous month to reach 51.4 points. This now puts the index above the expansion threshold of 50 points for the second month in a row. Readings above 50 signal an expansion in economic activity, readings below a contraction. In the current cycle, the index bottomed out at 45.5 points in September 2011. We believe that the Brazilian economy is now out of the woods and expect economic activity to start picking up as early as this quarter. This is likely to accelerate in the course of the year.
For one thing, monetary policy is likely to provide a stimulus: since September 2011 the central bank has trimmed its key interest rate by a total of 200 basis points despite still high inflation rates, taking it down to 10.5%. Further rate cuts will follow in the coming months. These are likely to be in response not least to the recent appreciation of the Brazilian currency. Since the beginning of the year the nominal effective exchange rate of the real has risen by almost 7%. Against the US dollar it was up by close on 10% at times. Secondly, it can also be assumed that, in the run-up to the major sporting events taking place in Brazil in 2014 and 2016 (Soccer World Cup and Summer Olympics), there will be an appreciable increase in currently very subdued investment activity, above all in infrastructure. All told, real gross domestic product is likely to rise by 3.2% this year, following an increase of 2.7% last year.