Rio de Janeiro: Brazil started to emerge from its worst ever recession in the first quarter, officials and analysts said, but it may not be out of the woods yet with a weak economic recovery threatened by political turmoil. The economy grew by one per cent in the first quarter of 2017, ending eight consecutive quarters of shrinkage, the state statistics office said.
That offered a glimmer of light for Latin America’s biggest economy —and could throw a lifeline to President Michel Temer as he tries to fend off a huge corruption scandal.
But data from the IBGE statistics bureau put the good news in its dismal context: the first quarter’s GDP was down 0.4 per cent compared to the same period in 2016.
Finance Minister Henrique Mereilles called it a “historic day” after Brazil’s “worst recession in a century” that has seen millions lose their jobs.
“There is still some way to go to achieve a full economic recovery, but we are heading in the right direction,” he said in a statement on Thursday.
Overall in 2015 and 2016, the economy dropped a whopping 3.8 per cent, then 3.6 per cent.
“Brazil has finally exited recession,” but “the recovery will be stop-start,” wrote analyst Neil Shearing of research group Capital Economics, in a note on Thursday.
He warned of the risk of weaker growth in the second quarter — “and that’s before the full effects of the latest political crisis are felt.”
Economist Mauro Rochlin at Brazil’s Getulio Vargas Foundation said the recession cannot be considered to be over until a second quarter of growth is registered.
He said the economy had sunk so low that businesses had got a boost from falling wages. He saw a “trend towards recovery, but with still quite a narrow base.”
The first-quarter bounce was led by a surge from Brazil’s giant agro-industry, up 13.4 per cent. The industrial sector grew 0.9 per cent. Services were flat and while that was an improvement on negative growth, it also signalled a lack of confidence by a public battered by unemployment and continuously falling family consumption.
Economists say the patchy improvements in different sectors, and the risk that the next quarter will reverse the gains, make it too early to declare an end to the recession.
But Temer, who faces a probe into alleged corruption and plotting to silence a witness, will likely trumpet the news as proof of his successful management — and reason for him to remain in power.
The conservative president has already repeatedly declared an end to the recession, citing forecasts predicting 2017 will close with about 0.5 per cent growth.
Temer is pushing austerity reforms to impose fiscal discipline — unpopular with ordinary Brazilians but backed by the markets.
Temer argues that any move to remove him from office would doom the effort and plunge Brazil into new instability. There was another piece of good news on Wednesday, when unemployment figures showed a slight dip to 13.6 per cent rather than yet another record rise. It was the first fall in unemployment figures since 2014.
Even so, 14 million people officially remain without jobs.
Later on Wednesday, the Central Bank lowered its key interest rate further by one full US.
The fragile recovery may now depend as much on politics as economics. Temer came into office just over a year ago, when the leftist president Dilma Rousseff was impeached for breaking government accounting rules. — AFP
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