Rebecca Ray, "Brazil: Key Economic Trends during and since the Recession"

[Monthly Review]

The recovery has been heavily concentrated in the service sector, in which the downturn and recovery to pre-recession levels lasted only four quarters. . . . It has now reached 8.5 percent above its pre-recession peak level. Industry has not fared as well: it shrank by 12.3 percent during the recession, during two quarters, and took four additional quarters of growth to regain its pre-recession levels. In the most recent quarter, it grew at an annualized rate of 8.9 percent, more than twice the growth recorded in the services sector, but over the last four quarters it has grown at a more modest 3.5 percent and is still only 2.4 percent above its 2008 levels. Within the service sector, financial intermediation and insurance has risen at a much faster pace than any other major area. The first quarter of 2011 saw this progress falter for the first time since the recession: it shrank at an annualized rate of 1.6 percent per year, but it is still 19.3 percent above its pre-recession levels. Over the last four quarters, it has grown 6.4 percent, and since the 2008 peak it has grown at an average rate of 7.3 percent per year. This is more than twice the growth in the overall services sector, and GDP as a whole, which have grown at average annual rates of 3.3 and 2.8 percent per year, respectively, since the 2008 peak. . . . Like the service sector, the industrial sector has one area growing much more quickly than the rest: in this case, mineral extraction. It shrank less during the recession (6.8 percent), and for a shorter time (only one quarter), than any other industry. While other industries saw their recovery stagnate in 2010, mineral extraction had three very strong quarters of growth that year, growing at an annualized rate of 38.9, 15.5, and 8.6 percent in each of the first three quarters, respectively. The last quarter of 2010 was essentially flat (it shrank at an annualized rate of 0.2 percent), and the first quarter of 2011 brought a more significant decline (at an annualized rate of 5.9 percent). Nonetheless mineral extraction, currently at 12.0 percent above its pre-recession peak, has greatly outperformed the rest of the industrial sector and is the only industry to outperform the economy as a whole. The worst-performing industry has been manufacturing, which finally recovered its pre-recession level in the first quarter of 2011. It lost 16.9 percent of its output during the recession and, like every other industry except mineral extraction, saw its recovery stagnate again in 2010. However, the first quarter of 2011 saw strong growth (11.6 percent annualized), bringing up its growth over the last four quarters to 2.4 percent. . . . This is the first time in more than 10 years that Brazil has seen sustained trade deficits, although they are modest, at 0.7 percent of GDP for the first quarter of 2011. This is down from the first quarter of 2010, when it was 1.1 percent of GDP. . . . Overall, the sustained trade deficit and the relatively weak performance of manufacturing as well as the industrial sector (outside of mineral extraction) is very likely the result of the appreciation of the Brazilian real over the last several years. In real terms, the currency remains at levels comparable to those under the Real Plan, before the devaluation of 1998.

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