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With Europe Sputtering Brazil Seems Heading for a Technical Recession

Finance minister Guido Mantega Brazil’s GDP stalled in the third quarter with zero growth when compared to the previous quarter. The slowdown was widespread. As expected, the industry took a nosedive, but for the surprise of many there also reduction of services and the slowdown in consumer spending.

For many analysts, it was quite difficult now for the Brazilian economy to grow even 3% in 2011. “Hardly the GDP will grow 3% this year,” says Braulio Borges, chief economist at the consultancy firm LCA.

A survey from Agência Estado show that many institutions are revising their forecasts for a GDP growth below 3% in 2011. Most believe, however, that the fourth quarter will be better than the third.

The Brazilian government slashed its growth forecast for 2011 upon finding out its economy shrank in the third quarter. This happens one week after announcing stimulus measures to boost consumption and contain the spillover from Europe’s debt crisis.

The Brazilian GDP contracted 0.04% from the previous three months, the national statistics agency IBGE informed, as credit curbs, higher borrowing costs and budget cuts checked demand. The contraction, the first since the first quarter of 2009, is equivalent to an annualized decline of 0.17%.

As Europe’s crisis deepens, president Dilma Rousseff’s administration is trying to reinvigorate the economy with a mix of tax cuts, interest rate reductions and looser bank lending requirements.

Finance Minister Guido Mantega cut his growth forecast for this year to 3.2% from 3.8%, while maintaining his target of as much as 5% for 2012.

The annualized fall in GDP was led by a 3.4% contraction in industry and a 1.06% decline in services. Agriculture expanded at an annualized pace of 13.56%, while a 7.41% jump in exports prevented a deeper contraction.

The strength of exports is unlikely to be sustained with China’s economy slowing and Europe falling into recession, said Neil Shearing, an emerging markets economist at Capital Economics Ltd. in London.

“Brazil looks like it’s destined to enter a technical recession,” Shearing said. “This presents an opportunity to policy makers to get rates into single-digit territory and keep them there.”

The central bank has cut its benchmark interest rate three times since August, pushing it to 11%. The government also stepped in last week to defend growth, slashing 2.8 billion reais (US$ 1.6 billion) in taxes, including levies on goods such as flour, wheat, bread and pasta, as well as on foreign purchases of stocks and bonds.

Brazil will underperform its emerging market peers this year, according to International Monetary Fund estimates. GDP will grow 3.8%, while emerging markets and China will expand 6.4% and 9.5% respectively, the IMF said in its September World Economic Outlook. The US will grow 1.6%.

The third-quarter contraction “has little to do with the international crisis and more with the delayed impact of monetary tightening and credit curbs,” according to Flavio Serrano, senior economist at Espírito Santo Investment Bank in São Paulo.

Brazil’s real has sank 12% against the dollar since June 30, as investors fled higher-yielding emerging-market assets on concern Greece would default on its debt and stall the world economy. The Bovespa stock index dropped 5.6% in the period, extending its decline for the year to 15%.

Brazil is growing at a pace consistent with meeting its 4.5 percent inflation target next year, central bank President Alexandre Tombini said Tuesday in a statement on the bank’s website.

Wind Power Boom

Meanwhile, Brazil is going through a wind power boom as production prices fall and government incentives attract a growing number of foreign suppliers.

The wind power sector has a current capacity of around 1,400 megawatts, and is expected to grow nearly eight-fold by 2014, according to the Brazilian Association of Wind Energy ABEEolica.
Furthermore a study by IHS Emerging Energy Research says Brazil, already Latin America’s leading wind energy market, is expected to have 31.6 Gigawatts of installed capacity by 2025.

At a government-organized power auction last August, developers of 44 wind farms in Brazil won 39% of the total capacity contracted an average price of 99.58 reais (62.91 dollars) per megawatt-hour, offering for the first time a price below the average for two gas projects (103.26 reais) and a hydroelectric one (102 reais).

Lower production prices, government incentives and Brazil’s soaring electricity demand have attracted a number of significant foreign players.

Wobben Windpower, a subsidiary of German group Enercon, set up the first wind turbine factory in Brazil in the 1990s and expects to install 22 wind farms totaling 554 MW by the end of 2012.

It has since been followed by Spain’s Gamesa, Argentina’s Impsa, Germany’s Siemens, Denmark’s Vestas – the world biggest wind turbine manufacturer – GE Wind – a branch of GE Energy from the United States and India’s Suzlon.

The latest to join was French engineering giant Alstom, which last week inaugurated a wind turbine manufacturing plant in the northeastern state of Bahia, its first in Latin America. The plant, located in the industrial complex of Camaçari near Salvador, Bahia’s state capital, will serve the domestic and export markets.

Alstom says its ambition is to match its current 40% market share in the Brazilian hydropower plant sector, which is Brazil’s main source of electricity generation.

“We won’t achieve that tomorrow, but in 10-15 years we can. We are very ambitious in this (wind) sector, not only in Brazil but in the rest of Latin America” said Philippe Delleur, president of Alstom’s Brazilian unit.

The greatest potential is in Brazil’s Northeast, particularly in the states of Bahia, Rio Grande do Norte and Ceará, due to fast wind speeds and low incidence of tornados or hurricanes. Most of Brazil’s wind farms are located on land.



  • Show Comments (2)

  • us journalist

    sew what ?…..no thanks i,ll pass on that one
    and the first half was written by a truth teller which is rare in brassssiilllll

  • jon

    The second half of the article seems to be written by a wind power lobbyist, quite a seque from the first half

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