As we near the end of the first quarter, there are various and sundry predictions as to how the Brazilian economy will perform. Brazilians love diminutives and superlatives. Last year Guido Mantega (do you want to say who he is for the more uninitiated) predicted 4 percent growth. When growth came in at .9 percent, Brazilians started referring to the PIBinho or “paltry” GNP. (Superlatives on the other hand as in “mulherao” and “jogao” are best reserved beautiful women and great football (soccer) games.)
Mantega again predicted 4 percent growth for this year. Most banks and non-government economists are less optimistic. Dow Jones reported an economic consensus of 3.3% in December 2012. And for the month of March, HSBC is forecasting 2.6 percent. Other noted economists, such as former Finance Minister Paulo Roberto Haddad, have stated that 2013 is likely to look a lot like 2012. While President Dilma has promised to invest through the PAC program (The Accelerated Growth Plan), these investments have already been allocated or the funds are slow to appear. As of today, only 2 of the 12 World Cup sites are ready and the government has given up on having a bullet train before the Cup and even on major airport improvements by confessing its lack of resources and handing over the most important ones (Rio (Galeao), Sao Paulo (Cumbica), Belo Horizonte (Confins) and Brasilia to private initiative.
Dilma will run for reelection next year. As people have very short term memories, she may be saving her powder for a drive in 2014 just as Brazil is playing superlative football, we hope. Investing this year runs the risk of stoking inflation. Currently Brazil’s Central Bank interest rate is at an all time low of 7.5 percent. But inflation is also rising without a compensating increase in savings and investment. Petrobras, while promising to maintain its ambitious investment plans, has been able to meet production needs. Gasoline prices have been held back and negatively affect the cash flow of Petrobras and other oil companies.
Dilma has promised a gasoline price hike. She also fears the impact on inflation and her popularity. Her intervention in the electric energy sector, while popular on the street and in the manufacturing sector, seriously threatens the balance sheets of energy producers and distributors and their stocks (some such as CEMIG and CFL, listed on the NYSE, have seen their market value drop significantly.
In the long term, things look good for Brazil. It has everything. But there are short term challenges, including the need to find appropriate growth (AND DISTRIBUTE THAT GROWTH?) with distribution model (All of which present policy makers and politicians with hard choices today as the country seeks to define its future.