Brazil’s Growth Slowed by Decline in Consumer Spending

A decline in consumer spending contributed to a slight contraction in the third quarter from the previous three months, according to Brazil’s statistics agency. Economists now see Brazil’s growth in 2011 slowing to 3 percent or lower, a sharp reversal from a booming 2010 in which the economy surged 7.5 percent, the country’s highest growth rate in two decades.

Fearing a deeper slowdown, Brazilian authorities last week introduced a fiscal stimulus package, including tax cuts on some appliances and food, intended to get consumers to spend again.

The package was a break from policies earlier this year when the authorities actively sought to cool an economy thought to be overheating. Consumer spending had been growing substantially, fueled by a surge in newly available credit, and the authorities repeatedly raised interest rates and taxes in an effort to slow it down.

But Brazil’s recent boom seems to have fizzled, at least for now, though financial markets reacted calmly on Tuesday to the growth report, reflecting sentiment here that the government still has various policy tools at its disposal to stimulate growth. The Bovespa index for the São Paulo stock exchange climbed 1 percent on Tuesday, while Brazil’s currency, the real, strengthened slightly to close at almost 1.8 to the dollar.

“Brazil differs from other economies that are facing structural problems, which suggests a long period of low growth,” said Rodrigo Telles da Rocha Azevedo, a principal at Ibiúna, an asset management company in São Paulo. “Brazil’s problem is more cyclical, giving us space for measures to reverse declines in consumption and investment.”

Brazil still boasts indicators that suggest that the economy is far from a crisis. Unemployment fell in October to 5.8 percent, a historic low, from 6 percent the previous month. The country also maintains $352 billion in foreign currency reserves, compared with just $54 billion at the end of 2005.

Still, concerns are emerging over domestic issues like insufficient infrastructure stretched thin by the economic growth of recent years and a labor force that lacks some of the skills needed by companies to proceed with ambitious expansion plans.

One megaproject in Brazil’s arid northeast, which would redirect the flow of the San Francisco River, seems in danger of becoming a massive white elephant, according to a report over the weekend in the newspaper O Estado de São Paulo, which published photographs of abandoned concrete works cracking under the sun.

The vigor of Brazil’s currency is another concern. While the real has fallen more than 10 percent against the dollar since July, it remains resilient. A strong real makes Brazil costlier than other countries, and it is seen as diminishing the competitiveness of industry here by making its manufactured products more expensive in export markets.

“Apart from the currency appreciation, imports of industrial goods have grown very fast,” said José Márcio Camargo, an economist at the Catholic University here. He said that contagion from Europe’s debt crisis was still less worrisome than the strong real and other domestic problems, including a high tax burden and poor infrastructure.

New concerns from abroad may also be on the horizon. China, Brazil’s largest trading partner, is showing some signs of cooling off, with new reports of weakness in manufacturing and services. Unlike Brazil, China is still growing at a healthy clip. But Chinese authorities have also introduced measures in recent days aimed at stimulating growth.

Elsewhere in Asia, India is facing slower growth and high inflation. And closer to home, Argentina, South America’s second-largest country and an important trading partner for Brazil, still has a growing economy but is struggling with capital flight as uncertainty persists over economic policies there.

Despite problems at home and abroad, Brazilian authorities remain sanguine about their ability to avoid a prolonged slump.

Finance Minister Guido Mantega said that stimulus measures introduced this month would quickly return the economy to growth, characterizing the disappointing figures as “temporary.”

“The condition is reversible,” he told reporters, emphasizing that salaries and the job market remained unaffected by the economic slowdown.

Lis Moriconi contributed reporting.

Article source: http://www.nytimes.com/2011/12/07/world/americas/brazils-growth-slowed-by-decline-in-consumer-spending.html?partner=rss&emc=rss