By Ben Tavener, Senior Contributing Reporter
SÃO PAULO, BRAZIL – The 2012 growth forecast for the Brazilian economy has been cut for the third consecutive week by market analysts, falling dramatically from the previous estimate of 1.5 percent to just 1.27 percent. The news comes after disappointing figures for the third quarter of 2012, released a week earlier by the IBGE, Brazil’s national office of statistics.
With only 0.6 percent growth on the previous quarter, the figure was just half the 1.2 percent target predicted by market analysts for the quarter.
Finance Minister Guido Mantega said that while he was “surprised” with the weak growth, he remained adamant the economy could grow at least four percent in 2013, as he has previously stated.
Mantega recognized that 2012 had been a “very difficult” year, but said it was ending with a return to growth and upward trend for the economy. He also said that cuts in the SELIC, Brazil’s benchmark interest rate, would also reap future benefits:
“We are living a silent revolution in the economy. The return to growth has already started,” O Globo newspaper quoted the finance minister as saying.
However, he laid the blame for the downturn in Brazil squarely on the international economy, saying the relapse in the economic crisis has damaged investments, which he said would “come back.”
The comments follow similar criticism made by the finance minister in recent months on the way overseas economies have been dealing with the crisis, particularly those implementing a program of quantitative easing, like the U.S., a process which he vehemently opposes.
Yet others questioned the extent to which Brazil can truly blame other nations for its financial troubles. Most commentators have been baffled by what they see as Mantega’s overly-positive outlook for the economy in 2013, and the Financial Times (FT) described the downturn as having “shaken Brazil from its dream.”
There are, however, others who agree with Mantega, such as Marcelo Carvalho from banking group BNP Paribas, who told the FT that economists had gotten “carried away with the weakness” seen in the first half of 2012, and that 2013 could see five-percent growth.
Yet Antony Mueller, professor of economics at the Federal University of Sergipe, says the latest figures come as no surprise and that a change in mindset towards the economy is sorely needed:
“The Brazilian government seems to believe that cheap money and more government spending is key to economic growth, and as such it tends to repeat the errors of the past,” he told The Rio Times, adding that the current government had not taken steps toward structural reform to improve economic efficiency.
Mr. Mueller says the cycle could end in financial collapse and that the attitude that letting foreigners invest in Brazil is somehow doing them a favor still reigns in Brazil: ”The government should recognize that nowadays it is a matter of what the country can offer to get foreign investment.”
There was, however, some good news: the agriculture-livestock sector grew 2.5 percent in October. Industrial production also picked up, growing 0.9 percent on September and 2.3 percent year-on-year. However, the services industry flatlined at zero percent in October.
The new 1.27 percent market prediction for 2012 has been somewhat pushed artificially low, according to experts, in recognition of the “sharp slowdown from 7.5 percent growth in 2010 and 2.7 percent last year.”
Brazil is banking on a series of billion-dollar investment programs, aimed particularly at improving the country’s ailing infrastructure, to boost the economy and increase the private sector’s role in getting Brazil back to strong growth, while reducing the so-called “Brazil Cost” that has weighed so heavily on the economy.