Growth in Brazil unlikely to bounce back any time soon

Brazil economic activity index suggests that the economy likely stagnated in Q4 14 on a sequential basis (-0.7% yoy) or declined marginally. This implies that it stagnated on a full-year basis too. 

Between 2011 and 2014, the economy grew by an average of 1.6%. However, it looks set to contract in 2015 and grow very modestly in 2016, implying an average growth rate of 1.2% between 2011 and 2016. This sharp deceleration is in stark contrast with the average growth rate of 4.5% during the period 2004-10.

Societe Generale notes .....

• In terms of the demand-side composition of growth, which is key to the near-term outlook, we estimate that while net exports and government spending dragged on growth in Q4, private consumption and investment made a marginal positive contribution. 
  
  
• Supply-side data suggest that the economy likely stalled in Q4 and 2014 or that, if not, it contracted marginally again. More importantly, with the investment outlook remaining bleak due to falling savings and fiscal tightening around the corner, the economy looks set to contract in 2015 and grow by less than its potential in 2016. 
  
  
• The economy is likely to contract in 2015 (SG: -0.3%) before recovering modestly to grow by 1.2% in 2016. The economy's growth potential has declined to below 2% from nearly 3.5% a couple of years back. 
  
  
• The other channels for growth are either too uncertain (external demand) or are dependent on an improvement in the investment climate at this stage (consumption). The economy's growth potential has declined below 2% and has not yet bottomed out.