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Brazil’s economy disappoints… again

Getty Images / Ian Gavan
Inflation has put some food staples out of consumers’ reach.
brazilThis article is more than 2 years old.

Latin America’s largest economy disappointed expectations for the fifth quarter in a row. Brazil’s GDP grew 0.6% in the first quarter of the year over the quarter before, below analyst expectations of 0.9%, officials said today.

Brazil’s middle class, which has boomed by 40 million since 2003, has been a main driver of the economy—the opposite of export-led emerging markets like China. (Consumers account for up to 60% of Brazil’s GDP, almost double the level in China). But now weaker spending by Brazilian consumers is in part dragging growth.

The culprit is rising inflation, which has stirred local fury over the price of food staples like tomatoes and eroded purchasing power. Retail sales have contracted and consumer confidence has fallen. Household consumption slowed to 0.1% from 1.2% the previous quarter, and the country’s services sector grew just 0.5% (paywall). President Dilma Rousseff has promised to boost spending on infrastructure and transportation, which would counter the slowdown in consumption. But that may be too little, too late. “Nothing in Brazil is at crisis levels, but it’s all going in the wrong direction,” Tony Volpon, of Nomura Holdings, told Bloomberg. “There’s a perception of just steady deterioration.”

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