Brazil economy continues anaemic; consumption boost expected in second half of 2012

The non-seasonally adjusted economic activity index, a proxy for GDP fell 0.02% from the year earlier, its first contraction in 31 months, the central bank said. Seasonally adjusted activity rose 0.22% in April from March, when it contracted a revised 0.61%.

Brazil’s growth outlook for this year has deteriorated in the past month to 2.53% from 3.2%, according to the latest central bank survey of analysts. Consumer demand has weakened, with April retail sales growing a less-than-expected 0.8% from March and industrial output falling 0.2% over the same period as manufacturers continue to lose market share to foreign competitors.

The April figure follows GDP growth in the first quarter of 0.2%.

Other countries in the region have also seen their economies slow recently. Peru expanded at the slowest pace in more than two years in April and Chile’s economic growth slowed to 4.8% in the same month from 5.6% in the first quarter.

The Brazilian government has said that rising real wages, falling interest rates and low unemployment will continue to drive domestic demand and accelerate economic recovery in the remainder of the year.

Policy makers have reduced the benchmark Selic rate by 400 basis points since August, while banks cut their lending rates to help boost economic growth that slowed to 2.7% last year from 7.5% in 2010. The government has also cut taxes on industrial and consumer goods, including automobiles, to stimulate consumer spending. Traders expect the Central bank to further cut rates to as low as 7.5%.

“The moment of consumption in Brazil is not over because of the country’s pent up demand,” President Dilma Rousseff said on June 13.