Brazil Economy Sputters With Stimulus Details Up in the Air

(Bloomberg) -- Brazil’s economic rebound lost steam at the end of last year the central bank reported on Friday, adding urgency to talks over a new round of stimulus aimed at reviving a beleaguered recovery.

The economy contracted by 4.05% in 2020 after expanding by 0.64% in December, according to the bank’s activity index, which is a proxy for gross domestic product. It was the third straight month of slowing growth, though the figure came in higher than the median forecast for a 0.4% increase from analysts in a Bloomberg survey.

The central bank data adds to evidence that growth in Latin America’s largest economy is sputtering. A stimulus-driven boom fizzled after the government ratcheted back stipends in September before eliminating them completely at year’s end. Lawmakers are now pushing for more aid, though depleted fiscal accounts limit how much money they have to spend.

What Bloomberg Economics Says

“The forces that drove the recovery seem waning. Cash handouts have not yet been resumed, the BCB is mulling a rate hike, and the vaccination roll-out has been so far too slow to tame a second pandemic wave. These factors bode poorly for growth in early 2021.”

-- Adriana Dupita, Latin American economist

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Brazil’s economic team has little room to maneuver within the budget after billions of dollars in extra spending last year pushed the deficit to a record. Still, there’s broad agreement in congress on the need for a new round of financial aid, and talks will speed up in coming days, Senator Alessandro Vieira, a party leader, said in an interview this week.

Read more: Pandemic Spending Pressure Puts Brazil Fiscal Rule at Risk

Worst Plunge

A series of recent indicators show the extend of the slowdown. Brazil’s retail sales posted their worst plunge on record for the month of December despite the holiday shopping season, the national statistics agency reported earlier this week.

On top of that, the nation’s services sector, which is already lagging other segments of the economy, also slipped on the month in volume terms. While unemployment dipped at the end of last year, it’s still near an all-time high of 14.6%.

Activity has been curbed in part by rising costs of staple goods such as food and fuels. The central bank has signaled it’s moving closing to raising its interest rate from a record low as annual inflation runs above target despite the uneven recovery.

Overall, the index showed economic activity grew 1.34% from the year prior. Brazil’s national statistics institute will publish the official fourth quarter and full year GDP data on March 3, but economists are already pessimistic.

Friday’s data was “better than expected, but growth will stutter soon,” Andres Abadia, a senior economist at Pantheon Macroeconomics, wrote in a note to clients.

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