The Risks and Politics

BRAZIL ECONOMICS - Report 04 Aug 2014 by Affonso Pastore, Cristina Pinotti and Marcelo Gazzano

The industrial output data for June virtually guaranteed that GDP will contract in the second quarter of 2014, and that the Brazilian economy is very near recession. Certainly the drawdown of inventories accentuated the drop in the production of durables (for instance, automobile stocks are at record high levels while sales remain weak), but output of capital goods also fell sharply. The combination of the decline in production and of the quantity of capital goods imported, along with the slowing production of construction materials (Graph 1), points to a fall in the rate of investments in the second quarter, adding more evidence that growth of both actual and potential GDP are decelerating.

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