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Economic recession persists
through end of year
On 27 February, the National
Statistical Institute (IBGE) reported that gross domestic product (GDP)
contracted 0.1% in the final quarter of last year over the same quarter
the prior year. The fourth quarter reading represented an improvement
compared to the 1.5% drop in activity observed in the third quarter but
was well below market expectations, which had seen the economy exiting the
recession with positive growth of 1.2%.
Despite the declining interest rates and an
improved credit setting, domestic demand dropped 1.2% in the fourth
quarter (Q3: -3.8% year-on-year). Investment led the decline with a 5.0%
decline in activity (Q3: -9.1% yoy), while total consumption dropped just
0.3% over the same quarter in 2002, following on a 2.6% contraction in the
third quarter. The external sector saw exports rise a healthy 10.1% (Q3
2003: +3.7% yoy) over the fourth quarter the prior year, while imports
grew at a lesser but robust 9.9% (Q3 2003: -5.5% yoy).
On a sectoral basis, strong declines in
construction and communications activity of 11.1% and 3.6% respectively
over the fourth quarter in 2002 were the key drivers behind the fourth
quarter decline. The majority of sectors, nevertheless, entered positive
growth territory, with agriculture and mining output experiencing the
strongest growth, both expanding 4.8% over the same quarter the previous
year.
As a result of the poor fourth quarter
performance, economic activity for the year as a whole dropped 0.2% - the
first contraction observed since 1992. The external sector was the key
factor that kept the economy from experiencing an even more pronounced
contraction, as exports increased a healthy 14.2% contrasting with a 3.2%
contraction of domestic demand, which suffered from weak investment and
consumption alike. Investment declined 6.6% and total consumption dropped
2.4% in 2003. The annual GDP figure was below the 0.2% growth expected by
the Consensus Forecast last month and also failed to meet the Central
Bank’s estimate of 0.3% growth. Lower interest rates and an improved
credit environment will be key drivers behind the expected rebound in
domestic demand this year, while export growth may moderate if the
benefits of increased global demand continue to be offset by currency
appreciation. However, a continuation of currency appreciation appears
unlikely as the Consensus Forecast actually anticipates nominal currency
depreciation of 6.7%. Thus, economic activity is anticipated to
accelerate this year, with growth expected at 3.6%, which unchanged from
month’s Consensus Forecast. The government’s official forecast of 4.0%
remains above the current Consensus figure, while the Central Bank’s
projection is on par with this month’s Consensus. |
