Signs of Recovery Begin to Emerge

Consensus Forecasts

Brazilian GDP data for Q4 2012 showed the economy picking up by 1.4% (y-o-y). This compared with a subdued reading of 0.9% in the prior three months. Activity was led by a 3.9% (y-o-y) gain in household consumption, while government spending was largely unchanged at 3.1% and growth in exports returned to positive territory. In q-o-q terms, the economic expansion was still sluggish at 0.6% in Q4, but this was still an improvement on the 0.4% figure posted in Q3. On a further encouraging note, gross fixed investment registered its first, albeit still modest, positive gain (+0.5%) following four straight quarters of contraction. For the whole of 2012, the Brazilian economy grew by a paltry 0.9% which marks the second straight year of slowing growth. The weak reading comes in spite of a raft of government-backed measures to boost activity. For the past year, the authorities have cut taxes, slashed the SELIC rate to record lows, weakened the real and encouraged cheap credit to little avail. The government is struggling to rebuild confidence in the economy and the finance ministry is targeting growth of 3.0-4.0% for this year. Our panel believes the expansion will be close to the lower end of this target range, however.

Venezuelan leader Hugo Chávez died on March 5, marking the end of an era. Mr. Chávez transformed the country with his ‘Bolivarian Revolution,’ polarising opinion sharply in the process. While his supporters view him as a hero to Venezuela’s poor, detractors argue that his policies were extreme as he expropriated many sectors of activity. Other policies created severe imbalances in the economy, including widespread shortages. These stemmed from state mismanagement, crumbling infrastructure and price controls. The recent bolivar devaluation, it is hoped, will relieve some of these shortages (not least by making imports more expensive) but it will also spur inflation which is currently the highest in Latin America. With Chàvez’s successor, Nicolás Maduro, expected to retain power after the April 14 election, government policy should remain on its broadly socialistic track.

You can download a sample of Latin America Consensus Forecasts at www.consensuseconomics.com.

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