Economy weighs heavily on Brazil election
September 8, 2014, 6:04 pm

The Central Bank is hoping that its measures will increase the amount accessible to Brazilian banks so that they can lower interest rates [Xinhua]

On Monday, Brazil’s Central Bank delivered even more grim news when it released its weekly survey of local economists who slashed growth prospects for 2014 and 2015.

The survey showed that 2014 growth is projected at 0.48 per cent – down from a 3 per cent prediction just a year ago, while GDP growth for 2015 is predicted to be 1.1 per cent.

The Bank’s survey data appears to continue the gloomy forecast made by government statistics agency IBGE which at the end of July said that the economy had contracted 0.2 per cent in the first quarter, and worsened to 0.6 contraction in the second.

On Monday, the Bank said that economists predict a nearly 2 per cent drop in industrial output for 2014. In August, the predicted drop was only 1.5 per cent.

When Brazilian President Dilma Rousseff took office in 2010, annual GDP growth stood at 7.5 per cent.

During her term in office, the growth rate has steadily fallen as European recession and slow recovery in some parts of the world negatively impacted Brazilian markets.

Close election

Political analysts say that the state of the economy has chipped away at Rousseff’s popularity and created the possibility that she could ultimately lose the election.

The Brazilian Institute of Public Opinion and Statistics said that the most recent polls indicate that Rousseff and her closest rival Marina Silva will both win less than the required 50+1 per cent but will easily make it to the second round of voting.

Silva, a former environment minister, was selected as the Socialist Party’s nominee to replace former candidate Eduardo Campos, who was killed in a plane crash in August.

In the second round, Silva is expected to win the election with 46 per cent to Rousseff’s 39, the Institute’s polls showed.

A poll on August 18 showed that the two front-runners were in a statistical tie.

Economic hurdles

Meanwhile, the Central Bank monetary policy committee last week said it would leave its benchmark Selic interest rate unchanged at 11 per cent.

While the Bank says this is to curb inflation – which ranges between 6.44 and 7 per cent – economists are worried that the high rates are slowing the economy.

Consumer confidence is dwindling, some economists say, as industry appears to slow down.

The Central Bank has in response said that “recent moderation in credit concessions, relatively low levels of default and the reduction of risk levels in the financial system” have allowed it to tap into its more than $180 billion reserves to ease lending restrictions to small banks and businesses.

“The central bank decided to adopt measures to improve the distribution of liquidity in the economy,” the bank added.

Nevertheless, runaway inflation, continues to be the country’s greatest economic impediment.

Brazil’s Central Bank had initially set a target annual inflation rate of 4.5 per cent, with a two-point margin, for 2014 and 2015.

But in early March, the Central Bank revised its full-year 2014 inflation forecast to 6.1 per cent from 5.6 per cent. In May, the figures were again modified – the new inflation forecast then was 6.3 per cent, just 0.2 per cent shy of the bank’s ceiling.

By mid-July, inflation had soared to 6.51 per cent, further weakening consumer spending. In August, the inflation rate held at 6.50 per cent.

There are other signs that the Brazilian economy faces an uphill battle to sputter back to recovery.

Although national automaker’s association Anfavea reported that automobile production – which accounts for 20 per cent of Brazil’s manufacturing output and is traditionally the best performing sector – rose in August, sales continued to drop.

In June, automotive output fell to its lowest level in five years. Despite August’s slight uptick, overall output compared to the same time last year is down by more than 22 per cent.

The BRICS POST with input from agencies