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With Electric Plug Pulled, Brazil Growth Slows

Compiled by Our Staff From Dispatches AP, Reuters Thursday, August 16, 2001

SAO PAULO Brazil's economy came to a virtual standstill in the second quarter, the government said Wednesday, as electricity rationing, a weaker currency and higher interest rates throttled industrial production and agricultural output.

Gross domestic product grew 0.8 percent compared with the April-June quarter of last year, significantly below expectations of a 3 percent pace. Growth was 4.3 percent in the first quarter compared with the like period a year earlier, the Brazilian Statistics Institute said.

Stocks fell on the news, though investors said Argentina's efforts to obtain aid from the International Monetary Fund was the market's main concern. The benchmark Bovespa index fell 1.94 percent to 13,658.60 points in late trading.

Measured on a quarterly basis, GDP fell 1 percent from the January-March period, the first contraction in the economy since the fourth quarter of 1998, when a currency crisis led to a sharp devaluation of the Brazilian real.

Brazil started raising interest rates in March to counter the inflationary impact of a slide in its currency against the dollar as Argentina's financial crisis sapped investor confidence in the region.

In May, the government declared Brazil's electricity shortage to be much worse than expected and ordered most of the country to cut consumption by 20 percent as of June 1.

"That really messed with consumers," said Newton Rosa, economist at MCM Consultancy in Sao Paulo.

Cia. Brasileira de Distribuicao Grupo Pao de Acucar, Brazil's largest retailer, said power rationing had led consumers to hold back on purchases of household appliances, while supermarket sales slowed as people emptied out their freezers. This led same-store sales to decrease 0.2 percent on the year in the second quarter.

"This performance was highly affected by the difficult macro scenario that caused a strong decline on the consumer's confidence level," said Fernando Tracanella, the company's investor relations manager.

Growth in industrial output slowed, the government said, to 0.4 percent in the second quarter from a revised 5.8 percent increase in the first quarter as companies such as the aluminum manufacturers Alcan Inc. and Alcoa Inc. were forced to shave output by around one-fifth to meet power rationing goals.

Agricultural output rose 0.2 percent in the second quarter, down from a revised 4.6 percent in the previous quarter.

"The number was disappointing," said Luis Afonso Fernandes Lima, economist at BBV in Sao Paulo, "especially when you consider that we're expecting a record harvest this year."

(Reuters, Bloomberg)

Mexico's Remains in Recession

Mexico's second-quarter GDP fell 0.25 percent from the first quarter as slumping industrial output hurt consumer spending, Bloomberg News reported Wednesday from Mexico City.

Compared with the second quarter of 2000, GDP growth was flat, the country's statistical institute said.

It was the third straight quarterly decline, meaning the economy remains in recession by the common definition of two consecutive quarters of contraction.

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-- Martin Thompson (mthom1927@aol.com), August 16, 2001