Sun, Aug 31, 2014 - Page 13 News List

Brazilian economy enters recession

BLOW TO PM:Figures released by the statistics agency IBGE showed that GDP had shrunk in the first half, giving ammunition to the prime minister’s opponents

Reuters, SAO PAULO

Brazil fell into a recession in the first half of the year as investment dropped sharply and the country’s hosting of the 2014 FIFA World Cup suffocated economic activity, a major blow to Brazilian President Dilma Rousseff’s already fading hopes of re-election in October.

The economy has suffered from stagnant growth for more than three years under the economic policies of left-leaning Rousseff, which have dented consumer and business confidence and caused heavy losses for financial investors.

The economy took an even bigger downturn in the second quarter, with GDP contracting 0.6 percent from the first quarter, government statistics agency IBGE said on Friday. It also revised its estimate for first-quarter activity down to a 0.2 percent contraction, meaning the economy entered a recession.

The data that confirmed the recession, Brazil’s first since the 2007 to 2009 financial crisis, gives a powerful weapon to Rousseff’s opponents in the Oct. 5 election at precisely the moment that her candidacy is at its most vulnerable.

Polls over the last week have shown Rousseff falling behind centrist candidate Marina Silva in the event of a second-round runoff.

Silva and the other main opposition candidate, Brazilian Social Democratic Party Senator Aecio Neves, have strongly criticized Rousseff for being weak on inflation and ruining the economic momentum that made Brazil a Wall Street darling last decade.

Brazil’s economy grew an average 4 percent from 2003 to 2010 under former Brazilian president Luiz Inacio Lula da Silva. Growth under Rousseff’s leadership is set to average less than 2 percent.

Brazil’s stock market rose as investors focused less on the bad economic report and more on the increasing possibility that Rousseff might not be re-elected. One equities investor on Wall Street e-mailed simply: “Hallelujah.”

In comments to reporters in the northeastern state of Bahia on Friday, Rousseff promised that the economic performance during the second half of the year would be “better.”

Despite efforts by Rousseff to win back business confidence in recent months, investment slid 5.3 percent in the second quarter its worst performance since early 2009. Manufacturing suffered its fourth straight quarterly decline, down 1.5 percent.

Business activity also slowed as Brazil hosted the World Cup in June and last month. Many cities declared public holidays on game days to prevent traffic problems and other logistical issues. Some factories began slowing down production before the World Cup started in anticipation of disruptions.

Rousseff and her economic team have blamed the downturn on continuing problems abroad.

“I want to emphasize that even really organized countries are having problems getting better growth,” Brazilian Finance Minister Guido Mantega told reporters.

He said GDP data suffered because of unique, seasonally related statistical effects and stressed the unemployment rate has been low and stable. As a result, he said he believed Brazil’s situation did not really constitute a recession.

Global demand for Brazil’s major commodities such as iron ore, sugar and corn also slackened, compared with the glory days seen last decade, when the economy often grew more than 5 percent a year, lifting some 35 million people out of poverty.

However, economists and business leaders said Brazil’s recent problems are mostly homegrown, and run far deeper than any short-term considerations such as the World Cup.

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