Brazil in recession as drought, inflation hammer economy

06 Dec, 2021 - 00:12 0 Views
Brazil in recession as drought, inflation hammer economy

The Herald

Brazil’s economy contracted slightly in the three months to September, government data showed on Thursday, as surging inflation and a severe drought triggered a recession in Latin America’s largest economy.

The 0,1 percent decline in Brazil’s gross domestic product (GDP) in the third quarter, reported by official statistics agency IBGE, was below a median forecast for zero growth in a Reuters poll.

Brazil’s economic rebound from the worst of the COVID-19 pandemic has sputtered as inflation surged into double digits, forcing the central bank to raise borrowing costs aggressively.

The economic headwinds have weighed on President Jair Bolsonaro’s popularity as he prepares to seek reelection in 2022.

Revised data showed a 0.4 percent drop in the second quarter, worse than the 0.1% decline reported previously.

Two straight quarters of contraction meet the definition of a recession.

Unusually dry weather this year has also hurt key Brazilian crops such as corn and coffee. Vanishing reserves at hydropower dams drove up electricity costs, adding to price shocks.

Agricultural production fell 8,0 percent in the third quarter, while industrial output was flat and services advanced 1,1 percent.

“With financial conditions tightening and inflation at multi-year highs, the services sector is likely to weaken,” William Jackson, chief emerging markets economist at Capital Economics told clients in a note.

The weak economic data may lead the central bank to maintain the pace of interest rate hikes at next week’s policy meeting, avoiding a larger increase that some had forecast, Jackson said.

Some economists are warning of a deeper downturn next year.

The market outlook for 2022 economic growth has fallen from 2,3 percent in June to less than 0.6 percent in the latest central bank poll of economists, released on Monday.

Brazil’s Economy Ministry dismissed that consensus in a statement on Thursday, reaffirming its forecast of economic growth above 2 percent next year and pointing to recent job creation data as evidence of a resilient recovery. – Reuters

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