Brazil Data Talk: Consumer sentiment about Brazil’s economic prospects deteriorated in 2011, according to the Consumer Confidence Index (CCI) prepared by the Getulio Vargas Foundation. Although the CCI reached its annual high of 124.4 points in July 2011, the CCI has since declined by an average of 3.84% for seven consecutive months from August 2011 to February 2012 though the index rose by 2.16% in March 2012. Increasing pessimism over the current and six-months-ahead economic situations was further reflected in both the CCI on the Present Situation and CCI on Expectations. Both indexes saw declines, with the former declining by an average of 4.14% from September 2011 to March 2012; whereas the latter slipped by an average of 3.81% for 11 consecutive months from April 2011 to February 2012 before seeing a rise of 5.06% in March 2012. Such bearish consumer sentiment may suggest decreasing expenditures and increasing savings in the near future.
Dismal Brazilian Consumers’ Expectations
Chart provided by: CEIC
The gloomy scenario coincided with the continuous fall of the market’s expectation of Brazil’s gross domestic product (GDP) growth. The market expectation of GDP growth for the year 2011 sank to 2.89% in December 2011, a stark difference from the optimistic 7.62% projection observed back in January 2011. Pessimism persists as the market, surveyed in March 2012, anticipates that Brazilian GDP growth will continue to decline to 2.73%. Market expectations for GDP growth a year ahead also slid from 4.34% in March 2011 to 3.23% in March 2012. Poor market expectations, along with rising interest rates until August and contractionary fiscal and monetary measures since December 2010, have turned into slowdowns in economic activities. This is partly reflected in lower household consumption. Growth in household consumption fell to 2.15% during the fourth quarter of 2011 from approximately 7.32% in the fourth quarter of 2010, leading to a mere 1.4% GDP growth during the period.
Some analysts suggested that the current economic slowdown could have been avoided if the GDP growth rate in 2010 had been lower than 7.5%, a level at which the economy could be supported without producing excessive inflationary pressures. Now, in the midst of an impending economic downturn, the Central Bank has taken steps to ease its monetary policy to revitalise the economy. Nevertheless, the Central Bank remains rosy towards the economy’s future prospects. According to Alexandre Tombini, the President of the Central Bank, the situation will soon return to normal given Brazil’s sustained growth, balanced management of domestic and external problems, as well as the convergence towards the inflation target in 2012.
By B. Vasconcelos – CEIC Analyst