LatinFocus - The Leading Source for Latin American Economies incl. Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela
LatinFocus - The Leading Source for Latin American Economies incl. Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela
 

LatinFocus

 
 
 
 
   
Latin America
 
 
 
 
 
  
Countries
 
 
 
 
 
 
 
 
 
  
Additional Links
 
 
 

 

Brazil:  Energy Concerns Overshadow Growth

A looming energy crisis has forced the government to adopt a broad-scale electricity rationing programme, which is expected to significantly cut back industrial production, a key factor behind the healthy growth experienced over the past year.  Further currency depreciation resulting from investor uneasiness has heightened inflationary expectations and forced the Central Bank yet again to hike interest rates.

Economic Briefing June 2001                                                                                 Archive

Energy concerns cloud economic prospects.  Prolonged drought and capacity shortfalls forced the government to announce a major energy-rationing programme on 18 May, which seeks to address mounting concerns about the increased likelihood of power shortages in the coming months.  Brazil is heavily dependent on hydroelectricity, which accounts for 93.5% power generation.  In the drought-stricken region reservoir levels are currently at 35.0% of capacity.  The government’s plan, which calls for an average 20% cut in energy consumption from businesses and consumers, principally in the southeast, central west and northeast of the country, went into effect on 1 June and will last until 30 November.  Users that do not comply with cutbacks will face hefty penalties on their electricity bills and cuts in power supplies of up to six days.  The electricity rationing is expected to affect economic activity principally via lower industrial output.  Cement, industrial gas, metals, paper and steel industries will bear the brunt of the cutbacks as the government has decreed that consumption in those industries must be lowered by 25%.  On the lower end, automobile, automobile part, beverage, leather, shoe and textile manufacturers will have to scale back consumption by 15%.  If companies do not comply they will face switch-offs.  As a result of the energy consumption cutbacks, industrial production growth is expected to slow significantly from the 6.5% observed last year. 

Economic growth moderating.  On 15 May, the government released first quarter Gross Domestic Product (GDP) data, which showed that the economy grew 3.8% in the first quarter of this year over the same quarter last year, down from 4.1% year-over-year growth observed in the last quarter of 2000.   The first quarter data surprised on the downside, since strong consumption and industrial output data indicated a stronger growth trajectory, and indicates that growth is slowing.  Industry, which registered 5.9% expansion over the first quarter 2000, was the strongest sector.  Within industry, manufacturing and construction experienced the healthiest expansions of 6.4% and 4.2% over the same quarter last year.  On the downside, services, which accounted for 58.8% of GDP in 2000, slowed from 3.9% year-over-year growth in the fourth quarter last year to 2.6% in the first quarter of 2001.  Similarly, agricultural output growth remained subdued with an expansion of just 1.1% in the first quarter.

Estimates as to the overall negative impact of the energy rationing on economic growth currently range from 0.5% – to 1.5% on the downside.  While the full impact of the energy crisis on economic prospects is not yet reflected fully in this month’s Consensus Forecast, the panellist-specific data indicate that sentiment has worsened substantially.  The Consensus Forecast expects GDP growth this quarter to remain close to the level observed in the first quarter this year but to moderate substantially in the second half.  Sentiment about growth prospects for this year has worsened.  Even though the extent of the carryover of the energy crisis into next year is uncertain, panellists have also adjusted their forecasts downward by 0.5 percentage points from last month.

Central Bank hikes for third time this year.  Concerns about mounting inflationary expectations resulting from the deterioration of the exchange rate and the domestic energy crisis, prompted the Central Bank to raise the benchmark SELIC interest rate an additional 50 basis points to 16.75% on 23 May.  The May increase was the third consecutive 50 basis points hike since the beginning of the year.  Monthly consumer prices, as measured by the benchmark IPCA index, rose 0.49% through May 15, virtually unchanged from the 0.50% increase reported for the same period in April. 

 

Continue >>

 

©  Copyright LatinFocus 2010  |  Privacy Statement  |  Hyperlink Policy

 

Home | Profile | Contact Us | Publications | Employment
Argentina | Brazil | Chile | Colombia | Ecuador | Mexico | Peru | Uruguay | Venezuela
Latin America | News | Web Directory | Indicators | Forecasts | Release Calendar