Brazil’s slowdown just keeps getting slower and slower. Over the past few weeks, analysts have been furiously downgrading their GDP forecasts for the Latin American country in light of the fresh crisis in global markets. List of banks downgrading the Brazilian GDP growth estimates:
1. Morgan Stanley: from 4% to 3.7% this year and next year’s from 4.6% to 3.5%
2. Goldman Sachs: from 4.5% to 3.7% this year
3. UBS: from 3.9% to 3.1% this year
Even Brazil’s own central bank announced that forecasts for 2011 growth fell to a median 3.84%. Despite all the optimism about consumer demand and rising middle classes, Brazilian growth is still very much indexed to global commodity prices.
Most economists are attributing the growth downgrades to the weakness of Brazil’s domestic industry. For over a year, they have been warning about a ‘growth mismatch’ in Brazil; the fact that higher consumer demand and retail sales do not necessarily translate to higher GDP.

“We thought people were misunderstanding the mismatch between very robust consumer demand and sluggish domestic production,” says Gray Newman, the economist for Latin America at Morgan Stanley. “Yes demand is there, but it is being met by imported products.”
Bottom line: If global commodity demand stalls (let’s say, China slows down), Brazil is in serious trouble.

Source: Financial Times and Business Insider

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