Schroders Quickview: Brazilian GDP growth may be the last for a while
30 March 2015
Brazil's latest GDP figure was slightly stronger than expected. However, Schroders Emerging Markets Economist Craig Botham believes the trend will be negative from here on.
Brazil has posted a GDP growth reading of -0.2%, year on year, for the final quarter of 2014. This takes growth for the year as a whole to a meagre 0.1%. This was above consensus expectations, but in line with our forecast. The quarterly reading was stronger than expected, at 0.3% quarter on quarter versus the consensus of -0.1%. Unfortunately, it is all downhill from here.
Data for the first quarter of this year suggests a further slowdown from 2014, which itself was a much worse year for growth than 2013 when GDP posted a 2.4% gain. Industrial production, unemployment and retail sales have all deteriorated, and the central bank’s own economic activity monitor points to a sharply weaker start to 2015. Meanwhile, inflation continues to climb and will face further pass-through pressure from the weakening currency, forcing tightening from a central bank whose policy rate already stands at 12.75%; one of the world’s highest.
With the additional headwinds of the 'Lava Jato' corruption scandal, fiscal consolidation and possible electricity rationing, 2015 is likely to be a lost year for growth in Brazil. There is also now news of a new corruption scandal at the tax appeals board, which will further stifle investment and sentiment. To make matters worse, President Dilma Rousseff would appear to be rapidly losing the popular mandate to take any action to fix things, with government popularity at its lowest since the last presidential impeachment. 2016 is, already, increasingly looking like a write-off as well.
Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.