Economia brasileira: confianca baixando, eleicoes mais disputadas - The Economist

Brazil’s economy

All systems slow

Confidence and growth down, public spending up

The Economist, Jul 26th 2014 | São Paulo | From the print edition/The Economist 

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DURING the month-long football World Cup, which concluded in Brazil on July 13th, rua 25 de Março, a tatty but popular shopping street in São Paulo, was a riot of yellow and green. It was hard to buy anything that did not come inthe Brazilian national colours. Now the flags and football jerseys are gone; the cheap bags and Calvin Klein knock-offs are back. Katia Maurício, who runs a stall full of T-shirts and headbands, is selling off the last of her World Cup-themed stock at a big discount. Business was good, she says. “But it will go downhill after the election.”

It is already heading that way. Business confidence has sunk to levels not seen since the depths of the global recession in 2009. Inflation among items whose prices are set by the market, not the government, stands at over 7%. Economists are busy slashing growth forecasts for 2014 to 1% or below. Analysts at Morgan Stanley see echoes of another 7-1, the scoreline when Brazil was drubbed by Germany in the World Cup semi-final. The more sensitive souls at Goldman Sachs warn of “stagflation”.

In June manufacturing payrolls contracted for the third straight month, the first time this has happened in half a decade; capacity utilisation, a measure of how much of the country’s industry is busy, has tumbled (see chart). After three years of anaemic growth “industry has finally thrown in the towel”, says Arthur Carvalho of Morgan Stanley.

The unemployment rate is low. But with job prospects dimming, consumers, who have pulled the economy along in the past few years, are growing more downbeat. Last month 11.4% were more than 30 days behind on their debt payments, up from 9% a year earlier. Retail sales have flagged.

Sagging confidence poses the biggest threat to President Dilma Rousseff’s chances of a second term in an election this October. In an effort to prevent voters from feeling the pinch, Ms Rousseff has loosened the fiscal reins. In May public spending was 16% higher than a year earlier and revenues 8% lower. As a result Brazil posted its second-worst monthly primary budget deficit (ie, before interest payments) ever. “They are trying to mask the problem until after the election,” says Ms Maurício.

If so, it isn’t working. The president’s poll lead has been shrinking steadily. A survey released by Datafolha, a research firm, on July 17th showed only a four-percentage-point advantage for Ms Rousseff in the event of a second-round run-off with Aécio Neves, her principal challenger. In February, her lead over Mr Neves in a second round was 27 points.