Brazilian real coins are seen in this picture illustration taken in Rio de Janeiro Oct. 15, 2010.Bruno Domingos/Reuters
Brazil's economy showed new signs of a slowdown Tuesday as steel makers slashed their growth forecasts, the country's number one airline scaled down its expansion plans and a new poll showed growing pessimism in the battered manufacturing sector.
The Brazil Steel Institute cut its outlook for steel output this year to 36.3 million tonnes – still 10.5 per cent above production levels in 2010 but well below the 39.4 million tonnes it had previously forecast.
The revision reinforces a recent trend: while Brazil is still posting growth rates far above most of the developed world, optimism has begun to fade in several sectors. Some of the darker outlook is due to global problems, but Brazilian consumers and manufacturers are also showing clear signs of fatigue after the credit-fuelled expansion of recent years.
The United Nations' economic body for Latin America, known as ECLAC, Tuesday became the latest entity to cut its growth forecast for Brazil. It now expects 3.5 per cent growth this year, down from a previous 4 per cent forecast and well short of the 7.5 per cent expansion seen in 2010.
"A yellow warning light is going off," said Paulo Francini, head of economic research at the FIESP industry group in Sao Paulo. "Industry is losing steam, and that's going to show up in employment too."
A Reuters poll showed that analysts expect the economy grew at a 3.2 per cent annual pace in the second quarter. The official data will be released Friday.
The slowdown is broad, and even extends to booming areas such as domestic air travel that have symbolized the emergence of Brazil's rising middle class in recent years.
TAM, Brazil's largest airline, said it was reducing its projected fleet at the end of next year to 159 planes rather than 163, as previously expected. CEO Libano Barroso said the move would save $50-million (U.S.) annually in line with "a more modest market" than expected.
Barroso said he still expects 15 to 18 per cent demand growth in 2012 – superb by most standards, but below the 21 per cent growth seen in Brazil's passenger traffic in 2010.
A slowdown has been welcomed by some economists and government officials who had worried about potential asset bubbles in Latin America's biggest economy. Real estate, one of the most closely watched sectors, seems to be coming back to earth, as new home sales in Sao Paulo fell 31.3 per cent in the first half of the year compared with a year ago, the Secovi-SP industry group said Tuesday.
Yet many are unhappy with the slowdown. Brazil's economy is now expected to grow at a slower pace in coming years than other economies in the BRIC group of large emerging markets, which includes China, Russia and India.
Brazil could grow more slowly than any other major Latin American economy in 2012, according to the International Monetary Fund. That outlook has prompted some local investors to pressure President Dilma Rousseff's government to make tax reforms and other changes that could lead to higher growth, although a political crisis makes major reforms unlikely.
In certain areas of the economy, some are even talking of a contraction in coming months.
A new FIESP study showed a darkening outlook for the manufacturing sector, which was a laggard even during the boom years, due to Brazil's high logistic costs and an overvalued exchange rate.
FIESP's INA activity index for July rose 0.3 per cent on a seasonally adjusted basis compared with June. Yet the group also released a poll showing confidence among manufacturers slipped to its lowest level since December.
The poll "says there's bad weather ahead," Mr. Francini said, adding the INA could turn negative by the end of the year.
The strong real, and slowing economic growth generally, has led to pressure from some Brazilian sectors for greater protections for critical industries.
"We need to protect our domestically produced steel, we need to defend our jobs and not create jobs for the Chinese," said Catia Mac Cord, director of marketing and economy for the Brazilian Steel Institute.
Consumer spending is also starting to slow down, due in part to rising interest rates. The central bank has raised the benchmark Selic rate five times this year to 12.5 per cent, hoping to subdue inflation that has run hot because of the breakneck economic expansion last year.
Ms. Rousseff expressed hopes Tuesday that the Selic could come down soon as the economy cools. But economists believe the bank will leave the rate unchanged at Wednesday's regular rate-setting meeting since wage pressures remain intense.
Brazil's main credit card industry group, ABECS, said it still expects revenues among companies operating in the sector to grow between 20 and 23 per cent this year. However, ABECS President Claudio Yamaguti said the growth would be due more to "changes in consumer habits," such as reduced use of cheques, and the spread of automated payment, than economic growth.
With files from Vivian Pereira, Brian Ellsworth, and Aluisio Alves, and Brian Winter