Brazil drifts into recession as election looms

August 30, 2014 - 12:00:00 am
Vendors wait for clients at a car dealership in Sao Paulo yesterday. Brazil suffered a recession in the first half of the year as investment plunged.

BRASILIA: Brazil, Latin America’s largest economy, has fallen into recession, further weakening President Dilma Rousseff, just weeks before voting in what will be a tough re-election battle.

Brazil’s national statistics institute said yetserday that GDP shrank 0.6 percent in the second quarter and revised its formerly positive growth estimate for the first quarter down to -0.2 percent. 

Coming ahead of October presidential and general elections, the figures will damage already low industrial and consumer confidence in what once was a fast-growing regional powerhouse.

And the contraction comes with Rousseff locked in a tough fight to win re-election, as the latest polls show a major surge in support for Marina Silva, challenging her from the left.

Silva, a former environment minister under Rousseff’s predecessor Luiz Inacio Lula da Silva, shot to prominence after Socialist candidate Eduardo Campos died a plane crash on August 13.

She had been Campos’ running mate and took the reigns of his campaign. 

Polls this week show her defeating Rousseff in an October 26 run-off, although the latter remains favorite to top first round voting on October 5.

“The data are likely to be seized upon by Dilma Rousseff’s challengers in the presidential race to attack her poor record on growth and inflation,” said Robert Wood, Brazil analyst for the Economist Intelligence Unit.

“It is unlikely that the government will announce any new measures to breathe life into the economy,” he added.

Margarida Gutierrez, an economics professor at Rio University, warned 2015 would be tough.

“Brazilian growth has been slowing since 2011 owing to the great uncertainty surrounding economic policy and large degree of state intervention,” Gutierrez said. “This year brings additional uncertainties—the elections, the risk of electricity rationing and adjustments which will have to be made in 2015,” she said.

Analysts have in part blamed the poor second quarter showing on the public holidays which the government granted during the month-long World Cup football extravaganza.

Citizens enjoyed an afternoon off on Brazilian match days and host cities also enjoyed a holiday every time they hosted a game, dampening economic activity.

With most eyes on the football for five weeks, industrial activity dipped 1.5 percent in April-June, the IGBE national statistics agency figures show. As the country ponders a potential poll win for Silva, second quarter investment fell 5.3 percent.

AFP

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