Published On: Fri, Jun 19th, 2015

Brazil Economy Still Faltering, With GDP Contraction On Par With Russia’s

 

Story image for news on economy from Forbes

 

 

Brazil’s economy is grinding to the bottom. But the bottom doesn’t appear to have been hit just yet.

The monthly GDP proxy at the Central Bank of Brazil, known as the IBC-Br index, surprised on the downside on Friday by falling 0.84% in April. That’s from a downwardly revised -1.51% decline in the previous month and is now compatible with a yearly drop of 3.13%.

Putting this into perspective, Brazil’s BRIC counterpart Russia is expected to contract 3.25% this year and its economy is facing weaker oil prices and sanctions against its oil and finance companies. Brazil is moving in line with a sanctioned economy that is over dependent on one commodity, while Brazil has good relations with the world and a much more diverse economy.

So far this year, the IBC-Br is down 2.2%, and today’s reading leaves a negative carry-over for the second quarter of 1.6%. The iShares MSCI Brazil (EWZ) exchange traded fund will likely open in the red today.

Joaquim Levy (center) is the favorite of the trio now in full command of the Brazilian economy. The days of stimulus are over in Brazil and that will weigh on equities in the near term. With inflation higher too, interest rates aren’t coming down anytime soon.
Joaquim Levy (center) is the favorite of the trio now in full command of the Brazilian economy. The days of stimulus are over in Brazil and that will weigh on equities in the near term. With inflation higher too, interest rates aren’t coming down anytime soon.
Friday’s contraction is in line with the April drop for industrial production, which fell 1.2% and broad retail sales which were not awful but still contracted by 0.3%, both on a monthly basis.

These are yet more data points confirming general weakness persists in Brazil. Barclays Capital analyst Bruno Rovai said he expects the second quarter to contract by 0.7%.

The growth problem isn’t going away anytime soon. Brazil’s Central Bank is not in stimulus mode, and not by a long shot. With inflation rising yet again, Brazil’s central bank will undoubtedly keep increasing the benchmark interest rate.

 

 

[“source-forbes.com”]