Bloomberg News

BNDES Offers $9.8 Billion to Brazil States as Growth Slows

June 15, 2012

Brazil’s state development bank will lend as much as 20 billion reais ($9.8 billion) to states as part of a government plan to revive economic growth by boosting investments in infrastructure.

States have until January 2013 to tap the credit line created by the Rio de Janeiro-based BNDES to help shield the economy from slower global growth, Finance Minister Guido Mantega said. The Treasury will be allowed to guarantee the loans to reduce interest rates paid by states, he said.

Brazil’s economy contracted in April for the first time on an annual basis since September 2009, reinforcing economists’ expectations that growth in the world’s biggest emerging market after China will slow for a second straight year. Analysts surveyed by the central bank expect 2012 growth to slow to 2.53 percent even after policy makers reduced borrowing costs to a record and the government cut taxes on credit and consumer goods, and increased subsidized loans to companies.

Today’s measures are “an anti-cyclical policy of the state and federal government to reduce the exposure to the international crisis,” Mantega told reporters in Brasilia. “With these measures we are increasing the investment capacity of states, stimulating new projects.”

Economic Contraction

The non-seasonally adjusted economic activity index, a proxy for gross domestic product, fell 0.02 percent in April from a year earlier, its first contraction in 31 months, the central bank said today.

Analysts expected a 0.10 percent increase, according to the median estimate in a Bloomberg survey of 18 economists. Seasonally adjusted activity rose 0.22 percent in April from March, when it contracted a revised 0.61 percent.

Analysts have scaled back their forecasts for Brazilian growth this year to 2.53 percent from 3.2 percent a month ago, according to the latest central bank survey. The economy grew 2.73 percent last year, its second-worst performance since 2003.

“The recovery is much slower than expected, it’s hard to see the economy growing faster this year than last,” said Joao Mauricio Rosal, chief economist at Raymond James Brasil SA. “People are quite indebted and that’s affecting demand.”

The April figure follows gross domestic product growth in the first quarter of 0.2 percent, less than the median 0.5 percent forecast in a Bloomberg survey of 50 economists.

Regional Impact

Other countries in the region have also seen their economies slow recently. Peru expanded at the slowest pace in more than two years in April, and Chile’s economic growth slowed to 4.8 percent in the same month from 5.6 percent in the first quarter.

The government has said rising real wages, falling interest rates and low unemployment will continue to drive domestic demand and accelerate economic recovery in the remainder of the year.

Policy makers have reduced the benchmark Selic rate by 400 basis points since August, while banks cut their lending rates to help boost economic growth that slowed to 2.7 percent last year from 7.5 percent in 2010. The government has also cut taxes on industrial and consumer goods, including automobiles, to stimulate consumer spending.

“The moment of consumption in Brazil is not over because of the country’s pent up demand,” President Dilma Rousseff said June 13.

Traders are betting the central bank will reduce the benchmark interest rate to 7.5 percent by August, according to Bloomberg estimates based on interest rate futures contracts.

Structural Impediments

Still, economic growth may fall short of the consensus forecast this year on growing euro zone fears and pessimism about structural impediments to Brazilian growth, Tony Volpon, head of emerging markets research for the Americas at Nomura Holdings (NMR:US) Inc., said in a research note today.

“Unfortunately, the exogenous factors hitting the economy in the second quarter, both external and internal, are, if anything, worse than the first quarter,” Volpon said, forecasting 2012 growth of 1.9 percent.

In the first quarter, investments fell 1.8 percent from the previous quarter.

Brazil this year is forecast to grow less than Russia, India and China, the other so-called BRIC countries, according to an April forecast from the International Monetary Fund.

To contact the reporter on this story: Arnaldo Galvao in Brasilia at agalvao1@bloomberg.net; Carla Simoes in Brasilia at csimoes1@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.


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