Brazil Exits Recession

By Jaylan Boyle, Contributing Reporter

RIO DE JANEIRO – Last week respected financial organizations such as the Financial Times and Forbes were prepared to call the recession in Brazil a thing of the past.

Second quarter figures revealed strong growth in the industrial and service sectors, as well as a second quarter GDP growth of 1.9 percent.

The recent economic growth halted a streak of two consecutive quarters of declining GDP, which constitutes the accepted definition of a recession. The recent figures were published by the Brazilian Census Bureau (IGBE).

An official end to the recession will be particularly welcomed by President Lula, both as a vindication of recent economic policy and to support his party’s run for power in the forthcoming presidential elections in October next year. The economy appears to be climbing towards an annual growth rate of four percent, a target many commentators say will be met before the election.

Many commentators are also applauding recent measures taken to combat the global financial crisis, including tax concessions for individuals and businesses, and the cycle of interest rate cuts enacted by the Central Bank. Whether directly attributable to these measures or not, Brazil was one of the last countries to enter the recession, and will now be among the first to emerge from it.

A surprisingly resilient domestic market has been largely responsible for the encouraging news, according to Sergio Vale, economist at São Paulo consulting firm MB Associados (MB Associates). He pointed towards income transfer programs such as the controversial ‘Bolsa Família’ (Family Fund) as one of the factors responsible for keeping domestic consumption high. “It is a benefits system which pays poorer families a certain amount each month in exchange for keeping their children within the education system. Rising salaries across the board have also had a positive effect,” said Mr. Vale.

In fact, the recently released figures indicate that the poorest among Brazil’s 180 million citizens were the least affected by the current global financial turmoil, which again will serve to vindicate the policies of Lula’s government.

Tempering the rosy outlook for Brazil’s economy however is the news that exports of manufactured goods to developed countries and international investment, remain in decline. The government has announced a target for the end of 2009 of one percent GDP growth, and while analysts canvassed by the recent central bank survey of market economists see the reality being more in the region of -0.2 percent, this is still far more positive than 2008 predictions of a contraction of 4.5 percent.

The latest results may also prompt international observers to revise previous predictions, which foresaw the Brazilian economy shrinking slightly in 2009.

Many have noted that Brazil’s economic power brokers appear to have viewed the global economic crisis as an opportunity for the country. This attitude can be seen in recent efforts to boost productivity by cutting the cost of labor to companies in the form of tax breaks. The government is also expected to announce its intention to abolish companies’ obligatory payment of 25.5 percent of an employee’s gross salary into a variety of welfare funds.

“We have the chance to turn the global economic crisis into an opportunity,” finance minister Guido Mantega was recently quoted as saying. “We want to make a qualitative leap in productivity and put Brazil at the forefront of global growth. These measures will make it possible for a range of industries to compete in world markets.”