Text 1 Brazil’s economy

Government spending and exports of commodities like soy beans and metals to fast-growing countries in Asia, have propelled Brazil’s economy to sixth place in the world. But red-hot growth when Latin America’s largest economy clocked in a 7.5% growth rate in 2010 appears to have fizzled out.

The economy stalled in May following an unexpected drop in retail sales. That heightened fears for what was one of the few bright spots of the world economy, making it the worst performer among Brics nations. GDP grew just 0.2% in the first quarter year-on-year, marking the third straight quarter of near-zero growth.

There seem to be few signs that GDP growth will head back up above the 2.6% posted last year. The Bank of Brazil expects growth to be lower than 2.5%. The drop in retail sales raised worries over Brazil’s consumer-led growth model, which was fuelled by rising incomes and easy credit. In fact, the amount of loans that could not be paid back hit an all-time high in May, underlining how Brazilians are increasingly struggling to keep debt under control. That prompted banks to tighten lending, and the central bank cut interest rates for the eighth straight time in July to 8%.

[From: BBC.co.uk/news/business July 13 2012 – adapted]