MercoPress. South Atlantic News Agency

Brazil in “technical recession”; industrial output down 6.2%

Yet another bank cut the 2009 economic growth forecast for Brazil: JPMorgan Chase & Co. downed Latinamerica's largest economy expansion estimate for this year from 2% to 1.5%, as global recession takes its toll on industrial production and business confidence.

"We think the market is not taking into consideration the potential for continued disappointing surprises on the real economy front," JPMorgan said in a report. "Not only is the market underestimating the potential degree of the economic slowdown in the Brazilian real economy, but also earnings growth expectations for 2009 remain too high, in our opinion". Latinamerica's largest economy is now in a "technical recession," as defined by two negative consecutive quarters of negative growth, the report said. The bank estimates that Brazil's economy may have shrunk 4.6% in the fourth quarter of 2008 from the previous quarter, and that policy makers will respond by cutting Brazil's overnight rate 2 percentage points this year to 11.75%. JPMorgan joins other banks such as Morgan Stanley that in recent weeks have lowered their growth forecasts for Brazil amid a collapse in consumer spending and demand for commodity exports. Brazilian vehicle production plunged 54% in December from a year earlier to a nine-year low, the country's automakers said today. Brazilian industrial production fell 6.2% in November compared to the same month a year ago, which is the most in seven years according to Brazil's national statistics agency. "2009 will be a year of sacrifice," Sao Paulo Federation of Industries trade director Roberto Giannetti da Fonseca told the Estado de S. Paulo newspaper. Brazil's currency has lost more than 45% of its value against the greenback since August, now trading at 2.2 Reales to the US dollar. Exporters had hoped the sliding currency would boost demand for Brazilian goods, but a spreading recession has kept down sales in Brazil's two biggest markets, the European Union and the United States. Exports are expected to drop 17.7% to 163 billion USD in 2009, the first decline since 2000, according to Jose Augusto de Castro, vice president of Brazil's Foreign Trade Association, known by its Portuguese acronym, AEB. The decline will likely shrink Brazil's trade surplus 31% as the economic downturn deflates prices for Brazil's top commodity exports, including iron ore and soy, the AEB said. Still, the surplus, 24.7 billion USD in 2008 will hover around 17 billion because domestic demand for imports is due to slide along with Brazil's own slowing economy, Castro said. With expectations of declining exports and the need to bring in dollars, Brazil's government announced this week it planned to sell bonds in international markets, the first such action in eight months. The Finance Ministry said in a statement it would offer 10-year notes in Europe and the US, but no details were given on when the sales would take place or what amount. The weaker economic outlook will also give Brazilian policy makers room to begin lowering the central bank's benchmark rate from its current two-year high of 13.75% as soon as this month's meeting. Policy makers will cut rates by a half-point to 13.25% this month and the benchmark rate will end the year at 12%, according to a central bank survey of 100 economists taken January 2.