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Brazil in a Recession? No Way, Says Minister, Jobs Are Still Plentiful

Guido Mantega, Brazil's Finance Minister Brazilian Finance Minister Guido Mantega has recently put down the disappointing performance of the country’s gross domestic product (GDP) in the second quarter – down 0.6 against the previous period – to the low international demand on trade, circumstantial domestic problems (like the drought, which resulted in higher electric energy costs), and the lower number of business days in June, on account of the World Cup matches.

“In my opinion, talking about recession is impossible. A recession a prolonged period of stagnation, like the one experienced by European countries, and takes place when there’s unemployment,” the minister argued, adding that Brazil managed to create 500,000 jobs in the first semester.

According to Mantega’s assessment, in spite of the two consecutive quarters with the GDP on the wane, there would have to be more negative results if one were to be sure the country has gone into recession.

He went on to note that the first indicators of industrial output for the third quarter of 2014 announce a positive growth rate. The minister further highlighted that the inflation has already showed signs of accommodation and that the salaries remain high.

In his view, the domestic consumer market is also expected to react to the reduction in the mandatory deposits an other measures announced last week by the Central Bank, which should increase the capital used in loans.

“Our consumer market rises as insolvency falls, and there’s also the possibility of increasing the demand,” he believes.

With the latest GDP result below expectations, Mantega said that the government will likely revise the 1.8 percent growth target estimated for this year, but added he hopes that the revision of the result by the Brazilian Institute of Geography and Statistics (IBGE) does not confirm the reduction in the index.

The minister said that the primary surplus was affected by the unfavorable international scenario, but seemed to believe in better figures in the future.

According to Mantega, there are data that indicate an expansion in machinery and equipment sales in the second quarter, which should make an impact in the medium term. “Our surplus is among the world’s largest, and there’s room for an increase yet,” he remarked.

GDP

Brazil’s gross domestic product (or GDP, the total amount of all goods and services produced in the country) was reported to drop by 0.6% in the second quarter of 2014 against the first three months of the year, according to the Brazilian Institute of Geography and Statistics (IBGE). The goods and services produced totaled US$ 565.4 billion.

In the 12-month period (July 2013 to June 2014) the accumulated growth rate stands at 1.4%. Compared to the second semester of the previous year, the reduction was 0.9%.

The best outcome this quarter was seen in the agricultural sector, which is up 0.2% against the previous quarter. In the same period, the GDP  for industry shrank 1.5%, and the counterpart for services 0.5%.

The only industrial subsector to present a positive result was mineral extraction, with 3.2%. Among the areas with the most significant declines are the manufacturing industry (-2.4%), construction (-2.9%), and electricity and gas, water, sewers and urban sanitation (-1%).

The fall in services was driven by a reduction in trade activities (-2.2%).

ABr

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