Brazil's expansion cools somewhat.

The major signs from Brazil's economy all point to a slowdown. For example, a September 19, 2006 Bloomberg News report said that July 2006 retail sales were less than what had been expected. In fact, the difference between the expectations of the economists Bloomberg interviewed for the story were striking. Economists were expecting July 2006 retail sales to increase 4.0 percent from a year earlier, but when official results were released retail sales posted only a 2.3 percent gain. Bloomberg's source was the Brazil national statistics agency, which pointed out the sales figure put retail activity at its slowest pace since November 2003.

The retail sales report suggested, "consumers are paring back purchases as job creation slows," Bloomberg said.

Job creation did, indeed, slow. In July 2006, Brazil's economy created 16 percent fewer jobs than it did in June 2006. A comparison with the first eight months of 2005, however, showed that job creation in 2006 and 2005 was nearly identical. Brazil created 1.21-million jobs from January 2006 through August 2006, and 1.22-million jobs from January 2005 through August 2005.

On September 28, 2006, another story filed on the Bloomberg wire had some good news for Brazil's consumers and some bad news. The good news is that the Brazil Central Bank (BCB) cut its inflation rate forecast for 2006 down to 3.4 percent from 3.8 percent. The bad news is that the BCB also cut its prediction for economic growth down to 3.5 percent from 4.0 percent. Bloomberg cited the opinion of one economist who offered the speculation that the sluggish growth figures would inspire the central bank to lower interest rates in the coming months "in a bid to bolster investment and consumer demand."

The economist said that rate cuts would amount to half a point in each of the two coming BCB policy meetings.

Brazil's economy is likely to coast until the results of the October 29, 2006 presidential runoff election are known. The incumbent was widely expected to win a decisive majority until a recent scandal broke and forced the surprising runoff.

MARKET FOCUS:

Print Get the Mag Weekly Updates