Brazilian economy grew 0.2% in Q1 2014

The Brazilian economy grew by just 0.2% during the first quarter of 2014 compared to the previous quarter, says the Brazilian Institute of Geography and Statistics. GDP (gross domestic product) growth for Q4 2013 was revised down to 0.4%, according to official statistics. Compared to Q1 2013, the economy expanded by 1.9%.

Brazil’s economy has not hit 3% growth since 2010, when it expanded by 7.5% in a rebound from the Great Recession. According to its central bank, GDP is forecast to grow by 1.6% this year and 1.9% in 2015.

A slowdown in China, Brazil’s top trading partner, has affected Q1 growth. Currency devaluations and economic woes in Argentina, Brazil’s third-largest trading partner, hit the automobile sector.

Brazil’s hydroelectric reservoirs have dried up due to a severe drought. The central bank reduced its GDP growth forecast by 0.5 percentage point after factoring in the risk of electricity rationing.

Agriculture, which grew by 3.6% and was the only bright spot in Q1, is unlikely to do well during the next quarter.

President Dilma Rousseff, who aims to be re-elected in October, says that the FIFA World Cup, which is taking place in Brazil in June/July, should help boost the economy. She has a lot riding on the tournament whose last match will be played just three months before the general elections.

Will soccer decide Rousseff’s fate?

Football (soccer) and Brazil’s national identity go hand in hand. The World Cup’s success or failure could determine her political destiny.

Despite government spending on infrastructure and sports facility projects leading up to the world’s most viewed sporting event, low business investment combined with high inflation are taking their toll.

Business investment declined by 2.1% in Q1 2014, the largest fall in two years. Inflation in Latin America’s largest economy has stayed stubbornly at 6%.

In an effort to bring inflation down, the Banco Central do Brasil (Central Bank of Brazil) has kept its benchmark interest rate at 11%.

Protests against massive spending

Protests and strikes still abound across the country over how much the government has spent preparing for the World Cup. People say the $11 billion used up so far should have been destined for improving education, transport and health.

In 2013, millions of people demonstrated in the streets during the Confederations Cup, the prelude to the World Cup.

Despite being a nation of football lovers, currently 66% of Brazilians believe the tournament will do more harm than good.

Since 2007, when Brazil was selected to host the World Cup and Luiz Lula da Silva was president of a booming economy, the country’s mood has changed. The event was expected to prolong the economic miracle by leaving a legacy of new roads, subways, airports and other much-needed infrastructure improvements.

Rousseff still relatively popular

Despite losing virtually all the momentum that pushed the Brazilian economy forward during the last decade, forty percent of Brazilians in May said they would vote for Ms. Rousseff, three percentage points more than in April.

However, her opponents are gaining ground. Aécio Neves, the Social Democrat Senator who was recently backed by retired footballer Ronaldo, saw his support rise by six percentage points in May to 20%, while Eduardo Campos, a Socialist, registered a five-percentage point gain to 11%.

(Source: Instituto Brasileiro de Geografia e Estatística IBGE)

Growing pessimism in Brazil

According to The Conference Board and the Fundação Getulio Vargas (FGV), Brazilian pessimism is growing as its Leading Economic Index slipped -0.4% in April, after falling during the previous four months.

Pessimism is increasing across Brazil in services, industry and among consumers, the report informed.

Paulo Picchetti, an Economist at FGV/IBRE, said: “A more favorable external scenario helped stock prices and the trade balance in April, but this modest improvement wasn’t enough to overcome the increasing pessimism of entrepreneurs from the industrial and services sectors, and of consumers facing inflationary pressure.”

“Overall, the LEI continues to suggest that Brazil’s bleak economic situation is unlikely to improve in the upcoming months.”