Brazil slips into recession
SAO PAULO, Brazil (AP) – Brazil slipped into a recession during the second quarter, increasing pressure on new President Luiz Inacio Lula da Silva to fulfill his campaign promise to create 10 million jobs in South America’s largest country. Brazil’s gross domestic product fell 1.6 percent during the quarter ending in June, surpassing analysts’ estimates and a first-quarter contraction of 0.6 percent, the government said Thursday.
Second-quarter industrial output declined 3.7 percent from the previous quarter, while agricultural output fell 1.2 percent. Exports were the only category that improved, rising 2.9 percent in the same period.
Silva, a former union leader who took office Jan. 1, is under intense pressure to create jobs, control inflation and lower interest rates.
During his first months on the job, the central bank imposed a series of interest rake hikes to control double-digit inflation. But business and labor groups blamed the moves for stifling growth and prompting job cuts.
The economic figures released Thursday “were quite a surprise, and show that the slowdown process we went through during the first half of the year was much stronger than we expected,” said Eduardo Berger, an economist with Lloyds TSB in Sao Paulo.
Word that Brazil is in a recession came as no surprise to the legions of unemployed in Sao Paulo, South America’s largest city and the epicenter of Brazilian industry and business.
While unemployment is at 12.8 percent across Brazil, it stands at nearly 20 percent in Sao Paulo.
Outside an employment agency near the city center, 20 to 30 unemployed workers waited under a steady drizzle Thursday to go inside for interviews, only to be replaced within minutes by another group of candidates.
Luzineto Camach had been looking for work as a maid, nanny or cook for two months and her husband has been unemployed since the aluminum factory he worked at closed its doors last year.
She voted for Silva last year, but said she has since lost faith in his promise to raise living standards for the tens of millions of Brazilians living in grinding poverty with little hope of advancement.
“I thought he was a good person and an honest worker like us,” said Camach, 38.
“But there just aren’t any openings or possibilities now.”
Marcos Tachibana, a 19-year-old college student, said he needs money to help pay his monthly tuition of 500 reals ($167) and was relatively confident of finding a job as a corporate administrative assistant. But he didn’t expect a salary of more than 400 reals ($133) per month.
“Brazil is a constant state of crisis, and it’s been that way for years,” he said.
Business groups last week welcomed a deep interest rate cut by the central bank, saying it will give breathing space to businesses struggling to survive in the sluggish economy. But the benchmark overnight Selic rate is still at 22 percent, and labor unions say it is too high to stimulate the economy and create jobs.
Even if the rate cut does help, it will take months for the impact to ripple through Brazil’s economy, South America’s largest.
The series of interest rate hikes by the bank earlier this year helped reduce inflation from 12 percent annually to about 9.5 percent.
And the bank released a statement Thursday saying economic expansion could happen in the fourth quarter because of declining inflation and interest rates.
Though overall growth this year will be disappointing, Berger said, “the economy might have reached rock bottom. The scenario for a recovery seems to be set.”
Brazilian growth in 2003 was expected to be an anemic 1.5 percent, but Berger said the deeper than expected economic contraction could translate into growth of less than 1 percent for the year.
Analysts say Brazil’s economy must grow 5 percent annually for several years to create the jobs Silva promised in his campaign. But his own government predicts slow annual economic growth increasing to only 4.5 percent in 2006, the last year of his four-year term.
AP-ES-08-28-03 1455EDT