BRASILIA-- Brazil's economy expanded at an annualized rate of 2% in the last three months of 2012, following a slew of government measures intended to spur growth, but still a pace that is frustrating investors who had seen Latin America's largest nation as one of the major drivers of a global economic recovery.
Gross domestic product expanded a meager 0.9% during 2012 versus a 2.7% advance in 2011, in line with economists' estimates but nonetheless the worst performance since 2009, when the economy contracted 0.3% in the wake of the global financial crisis.
Throughout the year, the government unveiled multiple tax breaks, and took steps to weaken the currency to make exports more attractive, as the pace of growth slumped during the year.
The central bank slashed its benchmark rate to a record low of 7.25%, even as inflation remained persistently above target.
Yet a strong recovery expected in the second half of 2012 never materialized as global and domestic uncertainties caused local companies to rein in investments. Industrial output contracted last year as demand from Argentina and other trading partners ebbed, and agriculture was also a big drag on growth after the sector shrank 2.3% in the year.
After Brazil's GDP grew 7.5% in 2010, many expected the economy would help lift the world out of its financial and economic woes, alongside other emerging markets such as China and India. That pace of growth now seems a long way off.
"Brazil can grow 3% to 4% this year, which is currently the limit of our potential," said Professor Fernando Holanda de Barbosa, an economist at the Getulio Vargas Foundation.
"We would need more investment and less government interference in the economy to reach 5% to 6% growth. I don't see this happening under the present administration."
The government of President Dilma Rousseff has predicted economic growth of 4.5% in Brazil this year, a figure many economists say is optimistic, at best, and she and other top officials have said repeatedly on recent occasions that a recovery is under way.
Officials have embarked on a global drive to drum up foreign investment as it hawks a package of infrastructure investments that need some $235 billion. Finance Minister Guido Mantega on Friday said the government will continue to cut taxes to help spur a recovery.
"We're going to continue with tax cuts to lower the tax burden and make investment and consumption cheaper," Mr. Mantega told reporters. The global economic scenario appears to be healing, albeit slowly, and should be less of a drag on the Brazilian economy.
China's economy is starting to pick up again, while Europe has avoided a major collapse, and the U.S. seems set for steady growth.
In Brazil, industry appears to be slowly coming out of recession, and this is expected to be a boom year for agriculture. The government believes the Brazilian economy will continue to be underpinned by the consumer.
"The solid fundamental and a robust internal market are a differentiating factor of the Brazilian economy, which means that, even with a still-complex international situation, the current cycle of growth should continue in coming years," Central Bank President Alexandre Tombini said in a statement.
This year's growth prospects could be undermined by a recent upswing in inflation, which reached 6.2% through mid- February.
Mr. Tombini has said the bank is focused on fighting inflation and not propping up growth, which could mean higher interest rates that could slow momentum in Brazil's economy.
Still, while the economy struggled, Brazilians were shielded from some of the pain.
Unemployment remains close to record low levels, and salaries have increased, while government welfare programs have expanded.
The services sector expanded 1.7% in 2012 and consumer spending increased 3.1%. Millions of Brazilians have been lifted out of extreme poverty over the last decade.
"Brazilians aren't used to having this much money, so if the economy slows they don't feel it," explained Carlos Vilela, a purchasing manager in Sao Paulo.
A recovery could be crucial to the political fortunes of President Rousseff, who took office in 2011 and faces re- election in 2014.
With joblessness so low, she hasn't suffered politically yet, with her approval rating rising to a sky-high 78% as recently as December.
Low unemployment and government welfare payments have also shielded most Brazilians from the worst effects of the slowdown. Osmar Lobato Pinheiro, a Brazilia-based orthodontist, said he didn't notice much change at all at his practice last year.
"Many more people have risen into the middle class, and now they can afford things like orthodonture," he explained, adding that some of his colleagues have said they did indeed notice less demand last year. "Even with the weak economy last year was good for me."
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Gross domestic product expanded a meager 0.9% during 2012 versus a 2.7% advance in 2011, in line with economists' estimates but nonetheless the worst performance since 2009, when the economy contracted 0.3% in the wake of the global financial crisis.
Throughout the year, the government unveiled multiple tax breaks, and took steps to weaken the currency to make exports more attractive, as the pace of growth slumped during the year.
The central bank slashed its benchmark rate to a record low of 7.25%, even as inflation remained persistently above target.
Yet a strong recovery expected in the second half of 2012 never materialized as global and domestic uncertainties caused local companies to rein in investments. Industrial output contracted last year as demand from Argentina and other trading partners ebbed, and agriculture was also a big drag on growth after the sector shrank 2.3% in the year.
After Brazil's GDP grew 7.5% in 2010, many expected the economy would help lift the world out of its financial and economic woes, alongside other emerging markets such as China and India. That pace of growth now seems a long way off.
"Brazil can grow 3% to 4% this year, which is currently the limit of our potential," said Professor Fernando Holanda de Barbosa, an economist at the Getulio Vargas Foundation.
"We would need more investment and less government interference in the economy to reach 5% to 6% growth. I don't see this happening under the present administration."
The government of President Dilma Rousseff has predicted economic growth of 4.5% in Brazil this year, a figure many economists say is optimistic, at best, and she and other top officials have said repeatedly on recent occasions that a recovery is under way.
Officials have embarked on a global drive to drum up foreign investment as it hawks a package of infrastructure investments that need some $235 billion. Finance Minister Guido Mantega on Friday said the government will continue to cut taxes to help spur a recovery.
"We're going to continue with tax cuts to lower the tax burden and make investment and consumption cheaper," Mr. Mantega told reporters. The global economic scenario appears to be healing, albeit slowly, and should be less of a drag on the Brazilian economy.
China's economy is starting to pick up again, while Europe has avoided a major collapse, and the U.S. seems set for steady growth.
In Brazil, industry appears to be slowly coming out of recession, and this is expected to be a boom year for agriculture. The government believes the Brazilian economy will continue to be underpinned by the consumer.
"The solid fundamental and a robust internal market are a differentiating factor of the Brazilian economy, which means that, even with a still-complex international situation, the current cycle of growth should continue in coming years," Central Bank President Alexandre Tombini said in a statement.
This year's growth prospects could be undermined by a recent upswing in inflation, which reached 6.2% through mid- February.
Mr. Tombini has said the bank is focused on fighting inflation and not propping up growth, which could mean higher interest rates that could slow momentum in Brazil's economy.
Still, while the economy struggled, Brazilians were shielded from some of the pain.
Unemployment remains close to record low levels, and salaries have increased, while government welfare programs have expanded.
The services sector expanded 1.7% in 2012 and consumer spending increased 3.1%. Millions of Brazilians have been lifted out of extreme poverty over the last decade.
"Brazilians aren't used to having this much money, so if the economy slows they don't feel it," explained Carlos Vilela, a purchasing manager in Sao Paulo.
A recovery could be crucial to the political fortunes of President Rousseff, who took office in 2011 and faces re- election in 2014.
With joblessness so low, she hasn't suffered politically yet, with her approval rating rising to a sky-high 78% as recently as December.
Low unemployment and government welfare payments have also shielded most Brazilians from the worst effects of the slowdown. Osmar Lobato Pinheiro, a Brazilia-based orthodontist, said he didn't notice much change at all at his practice last year.
"Many more people have risen into the middle class, and now they can afford things like orthodonture," he explained, adding that some of his colleagues have said they did indeed notice less demand last year. "Even with the weak economy last year was good for me."
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