Brazil’s weak economy will be flexing its muscles heading into the second half and likely grow at 4 percent in annualized terms, Brazil’s Central Bank president Alexandre Tombini told reporters in a conference call on Monday.
“Domestic sectors of the economy are already playing a more important role for the second half, regardless of the global slowdown,” he said. Brazil is still a very much a closed economy, with exports accounting for just 12 percent of GDP.
While a lackluster global economy has surely impacted the major commodity exporters like Vale and affected confidence, Tombini said that a series of macroeconomic measures taken over the year — from payroll tax breaks to other fiscal incentives, coupled with falling interest rates — are already having their desired affect in the local economy.
Tombini isn’t the only believer. Foreign companies are pumping money into Brazil. Foreign direct investment into the economy was $64 billion over the last 12 months ending in May and June FDI figures look “very strong,” Tombini said. Last year Brazil was on the receiving end of $67 billion in FDI.
Inflows from foreign corporate investors have been more than enough to cover for Brazil’s current account deficit, meaning the country is in no dire need for external financing to pay its bills.
Brazil has gone through quite a rough patch. It put the breaks on the economy in early 2011 with the election of new president Dilma Rousseff, now firmly at the helm in Brasilia, the nation’s capital.
Over the last two quarters, GDP growth has stagnated to well under 1 percent. The country went through a topsy-turvy year of fiscal and monetary policies — from tax breaks, to tax increases; to rate cuts when inflation was still high, to faster rate cuts when the economy began slowing.
No one knew where to mark the line on inflation, causing companies to keep prices high in case their underestimated their own inflation targets.
If they got those targets wrong of course, they would end up losing money. Tombini said that the new regime at the Central Bank has been more closely aligned with other Central Bankers since the crisis of 2008 and saw the economy slowing into the second half of last year, therefore slashing rates even when inflation was still quite high, surprising the markets.
Today, Brazil has its lowest interest rates ever. The overnight Selic rate is just 8 percent. “We are living in a typical cyclical downturn. Plus, we’re going through a change in the business cycle that started in 2011 and with the deterioration of the global economy we were forced to change course with monetary policy,” he said.
“I know we have faced a lot of harsh criticism because of those decisions, but we have been easing rates since August 2011 and we are in the process of recovery, though slower than we would like.
We are confident that our monetary police and the measures that have been taken by the rest of the government are on track to provide higher growth in the second half of 2012,” Tombini said.
Meanwhile, the formal job creation data (CAGED) for June came in Monday at 120,440 jobs, well below market consensus of 142,166 jobs. Since headline CAGED is not seasonally adjusted, it only makes sense to compare data across years.
Over the past decade, June’s CAGED number is the second weakest, only slightly better than the 2009 reading of 119,495 jobs, a time when both the global and the Brazilian economies were in recession.
Looking at seasonally adjusted data, the current level of job creation, at around 100k per month, is well below its peak seen in mid-2010 and close to the level last seen in August 2009.
“The dynamics of the labor market, although more recently weaker, are still strong,” Tombini said. The economy is still creating around 1.2 million jobs in the past year, wages up 3 percent in real terms, and the total wage bill has continued to grow at a 5 percent pace.
“We see decent demand going forward, so the domestic economy will carry us,” he said, “apart from any major disruption.”
forbes.com
“Domestic sectors of the economy are already playing a more important role for the second half, regardless of the global slowdown,” he said. Brazil is still a very much a closed economy, with exports accounting for just 12 percent of GDP.
While a lackluster global economy has surely impacted the major commodity exporters like Vale and affected confidence, Tombini said that a series of macroeconomic measures taken over the year — from payroll tax breaks to other fiscal incentives, coupled with falling interest rates — are already having their desired affect in the local economy.
Tombini isn’t the only believer. Foreign companies are pumping money into Brazil. Foreign direct investment into the economy was $64 billion over the last 12 months ending in May and June FDI figures look “very strong,” Tombini said. Last year Brazil was on the receiving end of $67 billion in FDI.
Inflows from foreign corporate investors have been more than enough to cover for Brazil’s current account deficit, meaning the country is in no dire need for external financing to pay its bills.
Brazil has gone through quite a rough patch. It put the breaks on the economy in early 2011 with the election of new president Dilma Rousseff, now firmly at the helm in Brasilia, the nation’s capital.
Over the last two quarters, GDP growth has stagnated to well under 1 percent. The country went through a topsy-turvy year of fiscal and monetary policies — from tax breaks, to tax increases; to rate cuts when inflation was still high, to faster rate cuts when the economy began slowing.
No one knew where to mark the line on inflation, causing companies to keep prices high in case their underestimated their own inflation targets.
If they got those targets wrong of course, they would end up losing money. Tombini said that the new regime at the Central Bank has been more closely aligned with other Central Bankers since the crisis of 2008 and saw the economy slowing into the second half of last year, therefore slashing rates even when inflation was still quite high, surprising the markets.
Today, Brazil has its lowest interest rates ever. The overnight Selic rate is just 8 percent. “We are living in a typical cyclical downturn. Plus, we’re going through a change in the business cycle that started in 2011 and with the deterioration of the global economy we were forced to change course with monetary policy,” he said.
“I know we have faced a lot of harsh criticism because of those decisions, but we have been easing rates since August 2011 and we are in the process of recovery, though slower than we would like.
We are confident that our monetary police and the measures that have been taken by the rest of the government are on track to provide higher growth in the second half of 2012,” Tombini said.
Meanwhile, the formal job creation data (CAGED) for June came in Monday at 120,440 jobs, well below market consensus of 142,166 jobs. Since headline CAGED is not seasonally adjusted, it only makes sense to compare data across years.
Over the past decade, June’s CAGED number is the second weakest, only slightly better than the 2009 reading of 119,495 jobs, a time when both the global and the Brazilian economies were in recession.
Looking at seasonally adjusted data, the current level of job creation, at around 100k per month, is well below its peak seen in mid-2010 and close to the level last seen in August 2009.
“The dynamics of the labor market, although more recently weaker, are still strong,” Tombini said. The economy is still creating around 1.2 million jobs in the past year, wages up 3 percent in real terms, and the total wage bill has continued to grow at a 5 percent pace.
“We see decent demand going forward, so the domestic economy will carry us,” he said, “apart from any major disruption.”
forbes.com
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