SAO PAULO/RIO DE JANEIRO, (Reuters) – Brazil’s economy stalled in the third quarter as the euro zone debt crisis dragged on global demand and the country’s increasingly indebted consumers retreated after nearly three years of buoyant spending.
Latin America’s biggest economy posted zero growth from the previous quarter, the government said on Tuesday, a sharp slowdown from breakneck annual growth of 7.5 percent in 2010 that far outstripped developed nations.
The downturn has moved to the top of the agenda for President Dilma Rousseff, who is trying to tame inflation without derailing the boom that has lifted more than 25 million people out of poverty in the last decade and made Brazil a rare bright spot in an otherwise grim global economy.
Brazil’s third-quarter slowdown hit sectors that had been roaring ahead, with consumer spending – about 60 percent of the economy – slumping for the first time since the end of 2008.
Capital spending fell, as did the industrial sector, which has struggled for much of this year because of a strong local currency, which has opened the floodgates to cheap imports, especially from China. “The most shocking aspect of the number was the fact that all demand components contracted,” said Mauricio Rosal, chief economist at Raymond James & Associates in Sao Paulo. “The reversal … is very worrisome, and the worst is that there’s not much that can be done about it – we depend on a solution to the problems in Europe.”
The cooling economy has hit a broad swath of Brazil: Auto output plunged in September as carmakers idled factories to whittle down high stocks, steel mills have been slowing production as a glut in the market depresses prices, and job creation has also slowed sharply, with the government admitting it likely won’t meet its target for the year.
The Brazilian economy is expected to grow about 3 percent this year – better than crisis-hit Europe but well behind the pace of other big emerging markets such as India and China.
The government said the slowdown was temporary, predicting that growth would pick up in the fourth quarter and in 2012.
“We have the situation under control, in contrast to other countries, where growth is falling because of a fundamental lack of market,” Finance Minister Guido Mantega said.
The government sees growth around 5 percent next year, with the central bank saying in a statement that the country is in a sustained cycle of expansion despite the flat third quarter.
But many analysts say that’s unrealistic. With high inflation limiting government efforts to boost growth, spiking default rates and creaking infrastructure, Brazil’s problems go beyond a gloomy global outlook.