Investments Crumble and Brazil's Economy Shrinks by 0.5% in 3rd Quarter

12/04/2013 - 08h32

The Brazilian economy retracted from July to September as a result of a fall in business confidence, which, in the face of higher interest rates and tighter credit, lowered investments by 2.2% compared to the second quarter.

The 3rd quarter drop led the Brazilian economy to post its first decline since early 2009, shortly after the global crisis. Gross domestic product shrank 0.5% over the previous period.

Compared to the third quarter of 2012, GDP growth and investments showed some growth, albeit at a slower pace than in previous quarters. This year, the Brazilian economy is predicted to grow by 2.5%.

GDP tends to react during the last three months of the year and post "moderate progress", according to economists.

Part of the third quarter drop also explains the surprising bump in the second quarter, when GDP increased by 1.8%.

"One quarter offset the other, but the balance for the year points to low growth. We're returning to the 'double dip' profile but at a lower level. The Brazilian economy shows signs that it can not grow beyond 2% per year" says Silvia Matos, an economist at FGV (The Getulio Vargas Foundation).

Among the obstacles are factors of the time such as worsening government finances and the possibility of reducing the debt risk rating of the country (refuting the higher cost of borrowing from foreign companies).

Already other reasons are long-standing, like the reduced productivity of the workforce and infrastructure bottlenecks within the country.

At this point, one hope for 2014 is the highway, railway, ports and airports concessions, which can help to accelerate investments.

Used in an attempt to curb inflation, higher interest rates will, in turn, further affect the economy in the coming year. Scarce and more expensive credit and shaken confidence should contain both business owner and consumer sentiment.

With the fall from July to September (a worse outcome than seen in European countries in crisis), economists have reworked their accounts and estimates of a GDP of around 2% in 2014, most likely less than 2013.

Translated by STEVE HUGHES

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	Moacyr Lopes Junior/Folhapress
	The 3rd quarter drop led the Brazilian economy to post its first decline since early 2009, shortly after the global crisis