Brazil: Industrial output, GDP forecasts fall
August 4, 2014, 6:05 pm

Rising inflation, lower consumer spending and weaker industrial output have contributed to less than one per cent economic growth forecast for 2014 in Brazil [Getty Images]

The Brazilian Institute of Geography and Statistics (IBGE) reported on Monday that industrial production contracted 1.4 per cent from May to June, registering a total drop of 2.6 per cent for the first two quarters of the year.

Output in the automotive industry, one of Brazil’s best performing sectors, fell 12.1 per cent in June, and dragged overall industrial output down 6.9 per cent compared to 2013, IBGE said.

IBGE also said that this marked the worst drop in five years, but partially blamed the FIFA World Cup for the closure of many factories.

Runaway inflation, however, may 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 is 6.3 per cent, just 0.2 per cent shy of the bank’s ceiling.

But by mid-July, inflation had soared to 6.51 per cent, further weakening consumer spending.

Exacerbating the situation is yet another Central Bank revision of GDP growth to just 0.86 per cent in 2014 and 1.5 per cent in 2015, based on a survey of 100 economic experts. Forecasts for 2014 industrial output indicate continued contraction in 2014, but a 1.7 per cent growth in 2015.

The Central Bank raised the basic annual interest rate from 10.75 per cent to 11 per cent, in a bid to control the inflationary tendency, but this hasn’t produced the dividends the government had hoped for.

But there was positive traction in currency markets that might provide some comfort for Rousseff’s reelection campaign.

Government efforts to stabilize the real currency appear to be working albeit slowly.

Between August 2013 and June 2014, the real had devalued by about 30 per cent against the dollar.

However, Central Bank intervention, including injecting nearly $13.6 billion into the economy in a bid to boost lending as part of a stimulus package, has helped the real recoup its losses by 4.6 per cent.

Source: Agencies