As the National Statistical Office announced today, the Brazilian economy stagnated in the third quarter of 2011 after revised seasonally-adjusted sequential growth of 0.7% in the second quarter. Private consumption and investment fell marginally. Exports rose by just under 2%. The rise in imports topped 6%, with overall net exports thus negative.
The latest indicators point to very subdued growth in the current quarter as well. Industrial production in October slipped for the third month in a row and is now almost 2% down on its average third-quarter level. The purchasing managers’ index for the manufacturing sector in November picked up by more than 2 points on the previous month, but at 48.7 points it is still below the expansion threshold of 50 points. Readings above 50 signal an expansion in economic activity, readings below a contraction.
We expect the Brazilian economy to emerge from hibernation in the first quarter of 2012 and increasingly gather steam in the course of next year. Monetary policy is one factor: despite stubbornly high inflation rates, the central bank has lopped a total 150 points off its key interest rate since early September, bringing it down to 11%. Further rate cuts are likely to follow in the first quarter of 2012. Secondly, the recent depreciation of the Brazilian real against the US dollar is likely to have a positive impact on exports once the global economy gets back into gear in the course of next year. Last but not least, in the run-up to the major sporting events taking place in Brazil in 2014 and 2016 we are likely to see an appreciable increase in investment activity, particularly in infrastructure. All told, real gross domestic product is likely to increase by 3.2% next year following growth of 2.8% this year.