On Air Now

Listen

Listen Live Now » 101.1 FM Green Bay, WI

Weather

Current Conditions(Green Bay,WI 54303)

More Weather »
76° Feels Like: 76°
Wind: SW 6 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Tonight

Isolated Thunderstorms 57°

Tomorrow

Scattered Thunderstorms 81°

Fri Night

Thunderstorms Early 57°

Alerts

Brazil economy ends 2013 on an upbeat note, boosting Rousseff

Brazil's President Dilma Rousseff speaks at a joint news conference with European Council President Herman Van Rompuy and EU Commission Pres
Brazil's President Dilma Rousseff speaks at a joint news conference with European Council President Herman Van Rompuy and EU Commission Pres

By Brian Winter and Silvio Cascione

SAO PAULO/BRASILIA (Reuters) - Brazil's economy ended 2013 on a upbeat note thanks to strong consumer spending and investment, providing a much-needed boost to President Dilma Rousseff as she tries to rebuild her credibility with business leaders and win re-election in October.

Gross domestic product expanded 0.7 percent in the fourth quarter compared to the third quarter, government statistics institute IBGE said on Thursday. That was more than twice the amount expected by economists, and it pushed the economy to 2.3 percent growth for calendar year 2013.

Such growth is a far cry from the dynamic 4 to 5 percent annual levels often seen in the last decade, when Chinese demand for commodities helped make Brazil a star among emerging markets. Inadequate infrastructure, high consumer debt and sagging business confidence have brought Latin America's biggest economy back to earth since then, prompting fears of a long period of stagnant growth ahead, possibly for years to come.

Nothing in Thursday's data signaled a major pick-up in activity was in the cards, most economists agreed. U.S. bank PNC economist Bill Adams called the result "okay but unspectacular."

Nevertheless, it still ended a string of disappointing economic news and allowed Brazil to finish 2013 with GDP growth twice as fast as Mexico, which in recent years has surpassed it as an investor favorite in the region.

Meanwhile, a 6.3 percent jump in investment last year should over time help ease some of the bottlenecks holding the economy back. It will also give Rousseff a major calling card with business leaders as she tries to atone for policy errors early in her left-leaning presidency and convince them her second term will be more market-friendly.

"It was a surprise even for the government," an upbeat Finance Minister Guido Mantega told reporters. He said the jump in investment should

Investment was aided by Rousseff's drive to privatize some roads and airports, plus strong domestic production of capital goods. Despite sour sentiment among financial investors, which caused Brazil's Bovespa to be one of the world's worst-performing stock market indexes last year, businesses have generally taken a sunnier view of the country's long-term prospects, helping foreign direct investment remain strong.

Among 21 economists consulted by Reuters shortly after the data release, six said they were revising up their 2014 GDP forecasts based on the strong finish to last year. For example, Troster & Associates, a consultancy based in Sao Paulo, increased its forecast to 2.5 percent growth from 1.9 percent.

Still, in almost the same breath, many observers warned against getting too carried away by optimism.

Retail sales and industrial data suggest this year will be tough, with several challenges including a severe drought and problems in neighboring Argentina dragging on activity. Prior to Thursday, economists had median expectations for 1.7 percent growth in 2014.

PESSIMISM STILL REIGNS IN INDUSTRY

Market reaction to the data was positive. The Bovespa rose 0.9 percent by midday, while Brazil's currency, the real, strengthened 0.35 percent.

Business leaders, frustrated by what they see as Rousseff's heavy-handed interventions in the economy and excessive government spending, were also generally muted in their praise.

"The number a bit above the forecast doesn't change the investment plans for 2014. Commerce and industry are quite pessimistic," said Alfried Ploger, acting president of the Brazilian Association of Public Companies.

Indeed, the data contained plenty of grist for both bulls and bears.

On the positive side, household spending expanded 0.7 percent in the fourth quarter compared to the third quarter, while government spending grew 0.8 percent. For the full year, agriculture grew 7 percent compared to 2012, thanks to record sugar cane, soy and corn harvests.

However, industry shrank 0.2 percent in the fourth quarter, dragged down by a 0.9 percent fall in manufacturing. Brazil's factories have been struggling for years with high labor costs, bad infrastructure and low productivity.

On balance, the data seemed to address, if only partly, economists' long-standing concern that Brazil consumes too much and invests too little. Even with last year's improvement, investment accounts for just 18.4 percent of GDP, well behind regional peers like Peru and Colombia.

"It's a good result, since there was more investment, and you could see a reduction in the mismatch between supply and demand," said Jankiel Santos, chief economist at Espirito Santo investment bank in Sao Paulo.

Brazil's economy had been expected to grow just 0.3 percent in the fourth quarter compared with the third quarter, according to the median forecast of 43 analysts polled by Reuters.

The quarterly result represented a strong rebound after the economy had contracted 0.5 percent in the third quarter. Many economists believed that growth could have been negative again in the fourth quarter, which would have meant a recession.

The rise in government spending was also a mixed blessing. While it helped boost the economy, loose fiscal policy has also pushed up inflation and raised the threat of a credit downgrade by ratings agency Standard & Poor's.

Elevated inflation has dented business and consumer confidence, prompting the central bank to raise interest rates off record lows to 10.75 percent in a non-stop cycle since April last year. It also eroded purchasing power, leading to the worst year for retail sales in a decade.

The economy grew 1.9 percent in the fourth quarter compared with a year earlier, IBGE said.

(Additional reporting by Alberto Alerigi and Bruno Federowski; Editing by Todd Benson, Sofina Mirza-Reid and W Simon)

Comments