Brazil faces forecasts of slow growth
November 1, 2011
Brazilian government economic planners have been served the first warning this year that the Latin American country’s commodities-fueled economy may be slowing.
Data released by the state development bank BNDES indicated the sluggish growth wasn’t only a reality but one that had gained momentum in recent months.
Reports of the continent’s largest economy slowing contrast with projections that continue to indicate healthy activity in most sectors of Brazilian economy. The slowdown prognosis is based on lower lending figures, which indicate momentum in economic activity, the data showed.
The bank said its loan disbursements in 2011 will miss their initial target for the year, reflecting a shortfall of $2.95 billion-$4.14 billion. The estimated total loan disbursements for the year are likely to be no more than $83 billion against estimates of up to $87 billion.
The drop is partly the result of corporate borrowers changing their minds about making new credit requests but it represents the first annual decline in the figure since 2008, when Brazil was battling the global economic downturn.
The financing slump comes amid forecasts that Brazil’s economic growth this year may be less than half that in 2010. Last year’s economic growth, recorded at 7.5 percent, was the fastest in 24 years of economic activity in Brazil and attracted investors from all over the world.
At least part of the drop in borrowing from BNDES stems from conservatism among Brazilian corporate entities that have been buffeted by investor speculation and worries over the possible ramifications of the eurozone crisis.
Talks on building new business bridges with the European Union have been stalled for more than a year and discussions on reaching a free trade deal with Europe within the framework of Latin America’s Mercosur trade bloc have been inconclusive.
Officials say the eurozone crisis may encourage European negotiators to drop their objections to Mercosur, which is seen by the EU agriculture sector as a potential threat. EU analysts have said a deal with Mercosur will help EU to forge new trade links and find new sources of revenue at a time of adversity.
Several Mercosur member countries are doing well and Brazil in particular has a vast surplus that promises EU exporters a potential bonanza if a trade deal is realized.
Mercosur member countries are Argentina, Brazil, Paraguay and Uruguay as full members, Venezuela as a full member awaiting confirmation and Bolivia, Chile, Colombia, Ecuador and Peru as associates.
Analysts said the news of a potential economic slowdown in Brazil will likely cause a ripple effect in the rest of the Mercosur region, which has a gross domestic product of $2.895 trillion.