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Brazil is the first Latin American country to emerge from recession

Brazil is the first Latin American country to emerge from recession—and one of the earliest among the G-20 countries to have done so—following a 1.9% quarter-on-quarter expansion in economic activity in the April-to-June period. Whereas the global environment remains difficult and the export sector therefore continues to struggle, the strength of domestic demand has propelled the economy to the start of a recovery.

The second-quarter rebound came after two consecutive quarters of shrinkage (1% in the first three months of 2009 and 3.4% in the last three months of 2008), which had put Brazil into a technical recession. This relatively short recession was the first for Brazil since 2003. The quick economic rebound is attributable to the strength of domestic demand, particularly household expenditure, which grew by 2.1% in the second quarter. Exports of goods and services grew by 14.1%, while imports rose by 1.5%, government consumption grew barely, at 0.1%, while gross fixed investment was flat quarter on quarter.

Still, the finance minister, Guido Mantega, highlights the fact that Brazil was one of the last major economies to fall into recession in 2008, and one of the quickest to bounce back. This is testament, he says, to Brazil’s strong macroeconomic fundamentals and effective fiscal and monetary policies. He expects the recovery to speed up in the third and fourth quarters; whereas GDP shrank by 1.5% year on year in the first half of 2009, he expects it to grow by 3.5% in the second. This would bring full-year growth to 1%.

The mildness of Brazil’s recession—which is especially notable considering the high base of comparison—also reflects the high degree of diversification of the economy and trading partners, as well as the solidity of the financial system. The latter cushioned Brazil from the fallout of the global financial crisis that hit last year. And even though exports are down significantly from a year earlier, they account for just 13% of GDP—a much smaller share than in China, Japan and Germany (where exports reach around 40% of GDP). Consequently, the impact of the global demand downturn has been more muted for Brazil.

Brazil’s quick recovery also will be good news for other neighbouring Latin American countries, whose economies are closely integrated with that of South America’s behemoth. Argentina, in particular, could see expanded demand for its exports. Brazil’s automotive sector, for instance, is tied to that of Argentina, and has been experiencing healthy performance in recent months.

via Late In, First Out | The Economist

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