Rio de Janeiro – The Brazilian Gross Domestic Product (GDP) did not increase in the third quarter this year compared with the preceding quarter. At current values, the GDP stood at 1.05 trillion reals (US$ 781.8 billion). There was a 2.1% increase as against the same period of last year. Year-to-date, there has been a 3.2% increase. Over the last 12-month period, the GDP grew by 3.7%. The figures were released this Tuesday (6th) by the Brazilian Institute of Geography and Statistics (IBGE).
From the second to the third quarter, the only sector to grow was agriculture, at a rate of 3.2%. Industry declined by 0.9% and services, by 0.3%. Demand-wise, there were reductions in government consumption (-0.7%), family consumption (-0.1%) and investment (-0.2%).
In the third quarter, when compared with the second quarter, the Brazilian economy outperformed only that of the Netherlands, out of a list of 14 countries released by the IBGE. The Dutch economy saw a 0.3% decline in the same period.
The Brazilian economy behaved similarly to Belgium’s and Spain’s, and worse than those of the European Union (0.2%), France (0.4%), the United Kingdom, the United States and Germany (0.5%), Chile (0.6%), South Korea (0.7%), Mexico (1.3%), Norway (1.4%) and Japan (1.5%).
High inflation, interest rate hikes until July, and the adoption of government measures to cool down the economy in 2010 are some of the reasons that the country’s GDP did not grow, says the IBGE National Accounts manager, Rebeca Palis.
The so-called “macro-prudential measures” taken by the government in late 2010 include stricter requirements for granting credit, which impacted on financing for automobile purchases, for instance. This caused vehicle sales to drop in the first few months of the year, which in turn drove automakers’ inventory levels up.
According to Rebeca, as inventory levels increased, automakers reduced automobile production in the third quarter this year, and some even shut down. Said reduction was among the leading reasons for the 1.4% decline in processing industry output and the 0.9% decline in general industry.
The benchmark interest rate (Selic), which increased from 10.5% in the first quarter this year to 12.2% by the third quarter, also contributed to slow down the economy.
Despite the processing industry slowdown, other segments grew, such as the mineral extraction industry (0.9%) and civil construction (0.2%). The mineral extraction industry growth was driven by iron ore production. The civil construction industry, in turn, performed well as a result of works under the Growth Acceleration Programme (PAC, in the Portuguese acronym) and works targeted at the 2014 FIFA World Cup and the 2016 Olympics.
The reduced industrial output affected the services sector, which saw a 0.3% decline, the highlight being retail, which slowed down by 1%. The 3.2% expansion of agriculture, driven by increased productivity in crops such as bean, orange and cassava, prevented the Brazilian economy from slowing down.
According to Rebeca, in the third quarter, the Brazilian economy’s behaviour changed, after a streak of quarter-on-quarter growth. “We had a significant slowing down of the growth rate and there was even zero growth, different from what had been taking place before. Earlier, services were driving economic growth. In the third quarter, agriculture did,” she said.
From the perspective of demand, family consumption dropped by 0.1% in the third quarter compared with the second, partly due to depreciation of family income as a result of rising inflation, whose annualized rate, as per the Broad Consumer Price Index (IPCA), reached 7.31% in September.
Government consumption also dropped (-0.7%), as did gross fixed capital formation, i.e. investment (-0.2%). “[Economic] growth was being largely driven by investment, mostly due to machinery and equipment imports, which were growing significantly. Investment performed worse than did family consumption. This had not been the case lately,” she said.
From the demand perspective, exports were the only component of the GDP to grow (1.8%) in the third quarter compared with the second one, an even superior result than imports, which dropped by 0.4%.
The IBGE also revised the GDP growth rates for the first two quarters of the year it had released earlier. In the first quarter, compared with the preceding one, the growth rate dropped from 1.2% to 0.8%, and in the second quarter, it went from 0.8% to 0.7%.
The minister of Finance, Guido Mantega, admitted that the growth of the GDP will not reach 3.8% in 2011 as the government had forecasted. “Considering this result [the IBGE’s], we will hardly see a 3.8% growth rate as we had projected earlier. This is so not only due to the third quarter result, but also because the IBGE revised the results for the first two quarters,” he said. “This GDP result does not alter our expectations for 2012, when we should see greater growth. We will work so there is greater growth. The only instrument that will not change is fiscal policy,” he finished off.
The minister underscored that the government is in full command of the situation and reiterated that Brazil is in a very different situation than other countries when it comes to the international economic crisis. According to Mantega, whereas other countries are faced with a series of difficulties, such as declining domestic consumption, Brazil is able to address these issues using instruments to foster credit and consumption, such as those announced last week.
*Translated by Gabriel Pomerancblum
