Brazil might have limped out of a recession during the third quarter - but a breakdown of Friday's GDP numbers suggests that the growth is likely to be short-lived.
While Latin America's largest economy managed to eke out a 0.1 per cent quarter-on-quarter increase in economic activity, much of that growth was driven by government spending which rose by 1.3 per cent during the period.
Given the deterioration in the public finances this year – and the likelihood that fiscal policy will now tighten under the new Finance Minister Joachim Levy – this is unlikely to continue.
Meanwhile, consumer spending, which, up until this year had been the main driver of Brazil's economy and typically accounts for nearly two-thirds of the country's GDP, contracted for a second quarter this year.
Consumer spending dropped 0.3 per cent from the previous quarter as households, which binged on the government-subsidised credit boom of yesteryear, now struggle to pay down their debt. The appointment of Mr Levy has raised hopes of a return to a more orthodox - and less populist - approach to economic policies.
But the flip side to orthodoxy - as Neil Shearing from Capital Economics pointed out - is that both fiscal and monetary policies are likely to be tightened in the coming months. And that, in turn, will mean more pain for Brazilian consumers who are already grappling with high inflation and rising interest rates.
Overall, the economy is now expected to grow just 0.3 per cent this year, compared to 2.5 per cent last year.
Analysts agree that, even with the appointment of a new economics team, things in Brazil are probably going to get worse before they get better. But the upside for investors is that with the real at a multi-year low, now might be a good time to snap up Brazilian assets to ride the country's eventual recovery.
ft.com
While Latin America's largest economy managed to eke out a 0.1 per cent quarter-on-quarter increase in economic activity, much of that growth was driven by government spending which rose by 1.3 per cent during the period.
Given the deterioration in the public finances this year – and the likelihood that fiscal policy will now tighten under the new Finance Minister Joachim Levy – this is unlikely to continue.
Meanwhile, consumer spending, which, up until this year had been the main driver of Brazil's economy and typically accounts for nearly two-thirds of the country's GDP, contracted for a second quarter this year.
Consumer spending dropped 0.3 per cent from the previous quarter as households, which binged on the government-subsidised credit boom of yesteryear, now struggle to pay down their debt. The appointment of Mr Levy has raised hopes of a return to a more orthodox - and less populist - approach to economic policies.
But the flip side to orthodoxy - as Neil Shearing from Capital Economics pointed out - is that both fiscal and monetary policies are likely to be tightened in the coming months. And that, in turn, will mean more pain for Brazilian consumers who are already grappling with high inflation and rising interest rates.
Overall, the economy is now expected to grow just 0.3 per cent this year, compared to 2.5 per cent last year.
Analysts agree that, even with the appointment of a new economics team, things in Brazil are probably going to get worse before they get better. But the upside for investors is that with the real at a multi-year low, now might be a good time to snap up Brazilian assets to ride the country's eventual recovery.
ft.com
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