Throughout Brazil, the Economy is Operating Below Capacity

RIO DE JANEIRO, BRAZIL – Brazil’economy is operating with high levels of idle inputs, such as machinery and labor, in all regions of the nation and with inflation at comfortable levels. Such is the assessment of the Central Bank (BC), which released the Regional Bulletin in Porto Alegre yesterday, August 16th.

According to the publication, “the level of economic activity in the North retreated in the quarter ended in May, discontinuing the growth observed in the two previous quarters and reflecting the poor performance of the mining industry in Pará, partially offset by regional trade and by the production from the Manaus Industrial Pole.”

The Economic Activity Index of the Central Bank — North Region (IBCR-N) fell 0.3 percent in the period, compared to the quarter ended in February (one percent), according to seasonally adjusted data, i. e., the effects of the typical fluctuations of each period were excluded.

The Central Bank states that in the Northeast, economic activity (IBCR-NE) continues to reflect the growth rate. The recent scenario is the result of “a combination of an increase in the volume of services rendered and, mainly, in commercial sales, with a downturn in industrial production.”

“The poorer performance of the economy had an impact on the labor market, the only region to have eliminated a number of formal jobs,” states the report. The IBCR-NE varied -0.1 percent in the quarter ended in May, considering seasonally adjusted data.

According to the Central Bank, economic activity in the Midwest (IBCR-CO) recorded a retreat in the quarter ended in May, after five consecutive quarters of increase, particularly affected by the contraction in industrial sectors, in particular in the processing, energy and sanitation sectors.

“The prospect of positive performance in the winter harvests tends to favor the resumption of growth in the region, mainly due to developments in the food industry and the transportation sector,” states the report. Furthermore, the labor market has shown positive indicators as well as loans to households, which favors economic growth, adds the Central Bank.

The IBCR-CO decreased 0.5 percent in the quarter until May, in comparison to the end of February, in the non-seasonally adjusted series.

The economy maintained a gradual recovery trajectory in the Southeast region, evidenced by consecutive rises in the Central Bank’s economic activity index (IBCR-SE), since December, for the quarterly assessment.

In recent months, however, some of the main activity parameters suggest a slowdown in the rate of recovery, particularly industrial production — mainly affected by mining activity — and the number of services. The IBCR-SE varied 0.1 percent compared to the quarter ended in February, when it had risen 0.7 percent against the same baseline, considering seasonally adjusted data.

According to the Central Bank, the performance of the main economic indicators of the Southern region (IBCR-S) strengthens the process of adjustment of the activity in the first half of the year, in line with the trend noted in the country.

“However, on a broader scale, the region shows stronger growth than the national average. Industry plays a key role in this process, with a greater distribution of growth among activities, although the high level of idleness of existing capacity persists.”

In the labor market, on the one hand, formal employment with a signed employment booklet shows signs of slowing down at the rate of expansion; on the other hand, the drop in the unemployment rate and the increase in income, suggest an increase in demand in the coming quarters, which should be boosted by the release of funds from the Guarantee Fund for Time of Service (FGTS). The IBCR-S fluctuated 0.2 percent in the quarter ended in May, compared to that ended in February.