Brazil Market

Brazil’s productivity failure: hurting

Another Monday, another gloomy outlook from the Brazilian central bank’s weekly survey of market economists. GDP growth this year is seen at just 1.64 per cent, down from 1.73 per cent predicted last week and 1.85 per cent four weeks ago (and 4 per cent targeted by the government).

That is a fast adjustment. But hardly surprising. As the puff goes out of commodity prices and domestic consumption, the seriousness of Brazil’s failure to improve productivity is becoming increasingly apparent.

The survey is particularly downbeat on industrial production, seen falling by 1.78 per cent this year, down from an expected fall of 0.69 per cent four weeks ago.
As Samantha Pearson wrote on beyondbrics on Friday, Brazil’s upswing to 0.4 per cent quarter-on-quarter GDP growth reported last week (yes, upswing) disguised some pretty shocking numbers. Most of the growth came from a good corn crop. Industrial production fell by 2.4 per cent year-on-year and, within that, manufacturing slumped by 5.3 per cent.

Along with those figures from the IBGE, Brazil’s statistics office, were others showing that the value of exports fell by 2.5 per cent in the second quarter, the first quarterly year-on-year contraction since the end of 2009.
Domestic consumption, meanwhile, grew by just 2.4 per cent year-on-year, in spite of some hefty stimulus measures. In 2010, by comparison, domestic consumption rose by 7.3 per cent.

If the two big drivers of Brazil’s recent growth can no longer be relied on, the need to improve productivity – through tax and labour reform, infrastructure investment, education and so on – is more glaring than ever. But Brazil has failed to use its good fortune to address those issues. The government seems unlikely to pluck up the political courage to tackle them now that Brazil’s prosperity is under threat.