A report showed Brazil’s economy expanded in the fourth quarter at a slower pace than forecast. GDP grew by 0.6% q/q in the fourth quarter of last year, meaning that the economy grew by just 0.9% over last year as whole.
Here is what Capital Economics’ Neil Shearing had to say about the weak numbers:
“Brazil’s recovery grinds on, but the pace of growth is still disappointingly sluggish. Unless or until investment becomes a bigger part of the economy, growth is likely to be lacklustre and inflation will remain relatively high. We are nudging down our forecast for growth this year to just 3%.
Growth of less than 1% in 2012 represents a poor return on the massive stimulus that has been injected into the economy.
The sluggish response of growth has its roots in the imbalances that have been allowed to build in the economy over the past few years.
Consumer spending has been supported by a large run-up in credit and a period where real wages have grown ahead of productivity. Neither of these props can last forever.
For now, we expect the central bank to resist raising interest rates in the expectation that inflation starts to edge down in late Q2 as last year’s food shock unwinds. Our forecast therefore remains for rates to remain unchanged this year. But it’s a close call. Any sign that inflation is likely to prove more sticky than policymakers currently expect could trigger interest rate hikes.”