Brazil Market

Brazil GDP: not encouraging

When it comes to Brazil and GDP data, it’s always worth looking beyond the headline numbers.

On the face of it, the 0.4 per cent quarter-on-quarter expansion reported by the national statistics office on Friday was encouraging. It was the fastest pace of growth in a year and suggested that recent stimulus measures had kick-started the economy’s recovery.

Look a bit closer, however, and you will find that the headline number was mainly boosted by a 4.9 per cent expansion in agriculture. Look closer still, and you will see that was largely a result of higher corn production.

So, in fact, Brazil’s “economic turnaround” in the second quarter owes itself more to a bout of good weather and some innovative farmers, who have learnt how to grow a second corn crop on the back of early soya harvests, rather than any government policy.

Industrial production, for example, fell 2.4 per cent from the same quarter last year. Look closer and you will see that the figure was boosted by a 4.3 per cent increase in the production and distribution of electricity, gas and water. The manufacturing component though slumped 5.3 per cent.

For economists and anyone else interested in Brazil’s development, the GDP data is not hugely helpful. The key question is what has happened since the end of the second quarter. Are we starting to see the effects of recent interest rate cuts and consumer tax breaks?

Brazil’s ever-optimistic finance minister, Guido Mantega, is certainly confident. He says the economy is already showing a gradual recovery and predicts growth of 4 per cent or more for next year.

Judging from the central bank’s hawkish interest rate statement this week, it seems the country’s monetary authorities are also expecting the recent stimulus measures to start taking effect soon.

Given all Brazil’s bottlenecks and structural problems, the government’s biggest headache may soon not be growth therefore but inflation.