By Jennifer Kahn.
It may be a time of uncertainty for Brazil, not just because of recent disappointing economic data, but also because of a drop in demand stemming in part from Europe’s recession.
The Brazilian economy grew by just 2.7 percent in 2011, a steep descent from 7.5 percent growth in 2010.
Analysts’ surveyed by Bloomberg LP do not foresee Brazil’s economy growing above a 3 percent annual rate until the third quarter of this year.
In a speech at the Royal Academy in Brussels Tuesday European Trade Commissioner Karel De Gucht said that Brazil’s growth figures are “worrying, because Brazil’s gross domestic product has quite a way to go before it reaches developed-country levels.”
Brazil could also be vulnerable to investor fear should the global debt crisis worsen. Italo Lombardi, a Latin America economist at Standard Chartered Bank, pointed out in a note that the entire European debt crisis has hurt Brazil in a variety of ways, “risk aversion tends to go up, which affects demand for Brazilian assets in general, including stocks,” Lombardi said.
“Slow growth may be just what the country needed. Inflation was quite high, with consumer price inflation trending north of 7 percent in August 2011,” said Matt Hochstetler of Janus Capital. “I would be surprised if 2012 GDP growth did not exceed last year’s 2.7 percent and if 2013 GDP growth was not over 4.5 percent,” said Hochstetleter.
Near-zero interest rates in the U.S. have hurt the Brazilian economy by driving up the value of its currency and disturbs Brazil’s export business.
Brazil has recently announced a series of measures to boost economic growth, including slashing interest rates. Brazil’s Central Bank cut rates in April, with the benchmark Selic rate currently at 9 percent, down form 12.5 percent in August 2011.