Brazil Officially In Recession

By Doug Gray, Contributing Reporter

RIO DE JANEIRO – There were mixed signals from Brazilian economic experts last week as newly released figures showed a national GDP contraction for the second successive quarter. Six months of declining GDP is the standard formula for determining that a country is in recession.

Nevertheless, Finance Minister Guido Mantega was swift to calm fears, tempering the headlines with an assurance that the second half of the year would see recovery, with the prediction of solid, if not hugely impressive, growth of around 3%.

The Finance Minister has been criticized in the press for sidestepping the issue, claiming that this is merely a ‘technical recession’ and that the figures mask what is in reality a positive outlook for the country compared with the crises so many other countries are facing.

However there are still voices predicting an overall contraction in growth for 2009 which would come as a serious jolt for both Mantega’s optimism and President Lula’s government. Currently in its twilight months as contenders for the presidency begin to formulate their campaign paths, the potential of deepening problems will need to be carefully handled if the incumbent’s preferred candidate Djilma is to reap any success in the polls.

The figure that will be watched most closely is the steadily rising unemployment rate that hit 9% in March before a minor 0.1% drop in April. As industry looks fragile and factory production slows down, the inevitable consequence is that large numbers of workers will be laid off in all key sectors in the economy.

Though 140,000 lost their jobs in April, the crisis has been felt far less emphatically than in many of the richer countries of Europe and the United States. Unemployment in the USA for example recently outstripped that of Brazil for only the second time since 2003, a good indication that the latter is narrowly avoiding the very worst of the global crisis.

Figures released recently show that car leasing in Brazil grew 64% in April compared with the same period in 2008, signalling the success of the government’s policy to reduce the IPI on cars, the tax payable on industrial products. Car purchases have long been used as an important index for consumer spending and robustness and this stimulation in consumption is helping to keep confidence of annual growth high even if foreign investment has been hit by the crisis.

Despite talk of recession, there are good signs that Guido Mantega’s optimism for the end of 2009 is well founded. Certainly the deep troughs that were predicted in some quarters have been kept at bay and the aftershocks from North America’s crisis greatly reduced thanks to well considered economic policy. What will be of concern is if Brazil continues to lag behind the fellow BRIC countries in year-on-year growth, with India and China continuing to perform well in the face of the global crisis.