Brazil's Economy Tumbles Into Recession
International Business Times
Published Aug 29, 2014 01:08PM ET
Brazil's Economy Tumbles Into Recession
By Meagan Clark - Brazil’s economy has slid into recession for the first time in more than five years, ahead of the October presidential election, as lower confidence erodes investment. Economic activity shrank by 0.6 percent from April to June compared to the previous three-month period, the Brazilian government’s statistics agency reported Friday.
Economists polled by Bloomberg had expected only a 0.4 percent quarter-to-quarter drop. Gross domestic product, the measure of all goods and services produced, fell 0.9 percent in the second quarter compared to a year ago.
A 5.3 percent drop in investment over the second quarter drove the fall, though government spending also fell, and consumer spending remains weak at 0.25 percent growth over the quarter after a 0.2 percent fall in the first quarter.
The news comes after Latin America’s largest economy shrank by 1.5 percent in June, the fifth straight monthly decline and the worst since summer 2013, despite the tourism attracted by the World Cup. And growth in the first quarter was recently revised to a 0.2 percent fall from an initially estimated 0.2 percent rise.
The recession adds pressure on Brazil’s central bank to reduce the required amount banks must hold rather than lend out, or reduce interest rates to lower borrowing costs and put more spending power into businesses’ and consumers’ hands. It also adds pressure to President Dilma Rousseff, running for re-election, and her contenders Aécio Neves and Marina Silva to talk up economic reforms.
“We suspect that policy stimulus [from the central bank] would risk doing more harm than good,” Neil Shearing, chief emerging markets economist for Capital Economics, wrote in a research note Friday. “Instead, the key to reviving growth lies in whether the winner of October’s presidential election can implement much-needed reforms.”
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Written By: International Business Times
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