Bad NEWS Continues For BRAZIL

BRAZIL2Brazil’s economic growth continues to disappoint.

After data in December showed Brazil’s economy shrank in the third quarter of last year for the first time since 2009, the central bank’s IBC-Br index, a monthly proxy for gross domestic product, showed economic activity fell 0.3 per cent in November from a month earlier.

The market had been expecting an increase of 0.1 per cent for November.

The surprise contraction comes just two days after the central bank voted unanimously to raise its benchmark Selic rates by a larger-than-expected 50 basis points to 10.5 per cent.

The aggressive move is aimed at tackling the country’s high inflation, which hit 5.91 per cent last year.

However, Friday’s disappointing growth data is likely to renew the debate over Brazil’s inflation vs growth conundrum.

While Brazil’s sluggish economic growth has so far had little negative effect on employment levels, the fear in the market is that another rate hike could become the proverbial straw that breaks the camel’s back.

So far successive interest rate increases have done little to ease inflation – which has been exacerbated by the weak real and a run-up in government spending. As such, should the government continue prioritising inflation over growth?

With presidential elections coming up in October, it’s a question that Dilma Rousseff and her team are probably losing no small amount of sleep over.

Go to top