Tuesday, 10 March 2009

Brazil Posts Record Economic Contraction in Fourth Quarter; We Wonder What the Next Stimulus Measure Will Be

The Brazilian economy contracted the most on record in the fourth quarter as companies and individuals reacted to the global credit crisis by paring new investment, cutting jobs and curbing on spending. The $1 trillion economy shrank a seasonally-adjusted 3.6 percent in the fourth quarter from the previous three-month period. Most analysts consulted by Reuters and Bloomberg missed the number. The decline was the biggest since the government started calculating the current series in 1996. The number for the year-on-year comparison wasn't that bad: a 1.3 percent expansion from the year-ago period. The full year expansion for 2008 was 5.1 percent, versus 5.7 percent in 2007.

Well, there are already signs of panic in the market: some analysts are already calling for a cut of as much as 200 basis point in the Selic benchmark rate target tomorrow. There will be intense political pressure on the central bank to slash rates rapidly. But the fiscal situation is deteriorating rapidly -- so we should expect some moderation from the bank's policy makers. President LILDS, ''o Lula,´´ will probably rush to announce more tax breaks, exemptions and measures aimed at avoid the unavoidable. Brazil's on recession -- there's nothing the president can do about it.

No comments:

Post a Comment