Brazil’s economy: not as bad as it looked?

July 29, 2014

Brazil's President Rousseff looks on during a news conference to present the balance of the 2014 World Cup in Brasilia

Brazil’s economy may have grown by 3 percent in 2012, three times as much as originally reported, according to an ongoing review of GDP data that could solve one of the biggest economic puzzles since the global financial crisis.

If accurate, estimates from local consultancy LCA would help explain why unemployment remained so low and consumer prices failed to ease when Latin America’s economy looked so weak.

It would also suggest that President Dilma Rousseff and the central bank might have jumped the gun as they slashed interest rates and offered dozens of costly subsidies and tax cuts to jump-start an economy that may not have needed any stimulus at all.

The difficulty is that nobody will know for sure until after national elections due in October.

The consultancy’s calculations are based on recent studies that will be used by statistics agency IBGE in its next methodological revision of GDP data, due late this year or early 2015.

LCA’s calculations are in line with a very good proxy of economic growth, electricity consumption, which grew at about 3 percent a year through 2011 and 2012. The research firm based its new estimates on IBGE’s annual surveys of industry, retail and construction, and said the potential methodological changes would account for about 30 percent of the GDP numbers.

LCA warned that its estimate may differ substantially from IBGE’s final revision as the statistics agency will take into account other surveys such as the 2012 census. Still, taken together, the numbers suggest that Brazil’s economy grew about 6 percent more between 2007 and 2012 than previously thought.

In the meantime, Brazil has already pushed interest rates back up to double digits and has very little budget room for further tax cuts just as job cuts are starting to accelerate across Brazilian factories. Its economy has muddled along over the past year and has no real prospects for a pickup any time soon.

At minimum, the possible revisions to past growth should be a reminder that first reads on economic data are often misleading or simply confusing.

Just ask American policymakers and forecasters who were expecting a strong start to the year, found there was no growth at all, and then at final revision, a GDP hole of nearly 3 percent.  

Revisions of U.S. GDP data over the past three years are due on Wednesday. They are expected to look better, which may explain a lot about why its job market has done better than the reported growth rate, at least in the last few months.

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