The central bank’s monthly GDP proxy fell 0.3% in October, lower than market estimates (-0.1%). These results point to muted activity in the opening of Q4, imposing downside risks to the market’s +0.4% qoq call. Global turbulence has helped to slow domestic demand, but not yet exports. Dim foreign orders may dampen short term growth. Even so, available data for retail sales and industrial production hint at a positive reading for November GDP, but only time will tell. 

According to Itau BBA, Brazil’s government is striving to shun a steeper slowdown. In their view, interest rate cuts, tax breaks, looser credit conditions, faster public spending and a higher minimum wage should boost activity in the second half of 2012. 

Comments by Filipe Pacheco (via Sourcing Brazil):

For a long time analysts have considered Brazil a land immune to the harsh financial crisis that has been punishing developed economies but numbers have been showing otherwise. Surprisingly, the segment of the economy that gave the most support to the Brazilian GDP figures was the export sector, which grew 1.8%. Domestic demand fell 0.1% in the quarter, while government expenditures fell 0.7%. Investments in general dropped 0.2% and imports shrank 0.4%.

This is the first time Brazilian economy hasn’t grown since the beginning of the international financial crisis, which started in September of 2008. With these results, most economic analysts now consider it will be impossible to reach growth greater than 3% for this year, and also hard to advance to 3.5% in 2012 – and basically impossible to reach the 5% forecast by the government for next year. The numbers are considerably lower than the 7.5% growth that marked the year 2010.

The domestic market now expects the government to act, mainly by reconsidering a series of measures intended to avoid an overheating of the economy.

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