Brazil GDP shrinks 0.3%, but less than feared

Brazil's economy shrank 0.3 percent in the first quarter of 2016, officials said Wednesday, in a slightly better than expected performance, but far from lifting the deep gloom over Latin America's economic powerhouse. 

Year on year economic output for the period fell 5.4 percent.

That was better than forecasts by the country's leading private bank, Itau Unibanco, for a January-to-March dip of 0.8 percent and 6.1 percent annually.

Still, the figures from the Brazilian Institute of Geography and Statistics (IBGE), the government's statistics office, were unlikely to raise hopes much.

Brazilian economists' latest consensus is for a 3.81 percent contraction over this year, following a 3.8 percent dip last year, with weak 0.55 percent growth in 2017.

The Organization for Economic Cooperation and Development (OECD) issued an outlook that was even more grim, in a report released Wednesday predicting a recession of 4.3 percent this year, followed by a 1.7 percent fall next year.

The major exporter of oil, agricultural products and raw materials has been hit hard by the global fall in commodity prices.

Political crisis has also paralyzed the government, with president Dilma Rousseff suspended to face an impeachment trial, while her replacement, acting president Michel Temer, faces a difficult start.

He has picked a market-friendly economic team, vowing to make extensive reforms and on Wednesday reiterated his determination to steer away from 13 years of leftist rule. 

"There's no room in Brazil now for a bloated and inefficient state," Temer said Wednesday. "What Brazilians want is a state that provides opportunities for progress and entrepreneurship."

However, after Temer's loss of two of his new ministers to a massive corruption scandal centered on the state oil company Petrobras, the jury is still out on whether he will be able to survive both the economic and political storm.

- Can Temer save day? -

A 1.2 percent first-quarter dip in the industrial sector and a weakening of investments led the GDP crunch. Agriculture output and services also suffered 0.3 percent and 0.2 percent dips, respectively.

The national jobless rate soared to a record 11.2 percent between February and April, or a total of 11.4 million people unemployed, up from 8.02 million people a year earlier, according to statistics released Tuesday.
Consumption fell 1.7 percent, reflecting the belt tightening among ordinary Brazilians.

On the bright side, exports rose 6.5 percent. Imports fell 5.6 percent.

"The first quarter GDP shows that although the figures aren't as bad as feared, industry is very weak on the supply side and the fall of investments stands out on the supply side," Ignacio Crespo, an economist at Guide Investimentos in Sao Paulo, said.

"Industry and investment is weighing down GDP and the interim government should focus on enacting measures" to address that, he added.

Temer is vowing to make the economy his priority.

Currently serving on an interim basis during Rousseff's trial, he would take over until an election in 2018 if she is removed from office.

Despite the scandals rocking his cabinet, he scored an early victory last week when Congress approved his request to ease the government's spending ceiling.

By widening the approved primary budget deficit, Temer's government wins time and flexibility to enact austerity measures and other market reforms.

The government's ability to work with Congress and enact those reforms would be the deciding factor in whether the recession will end in 2017, Crespo said.

But "there are many doubts about the government's capacity to overcome the economic difficulties and political divisions."