The growth so far this year has come mostly from household consumption, which has fueled a retail boom and driven retail sales up 6%. The industrial sector, which is supposed to overtake commodities as the country’s growth engine, is down 2%.
The government has responded with a series of micro measures designed to support specific sectors. In May, for example, it slashed taxes on autos enough to drive the end price to consumers down more than 5% on average, and automakers are reporting brisk sales.
“The tax break is supposed to expire on August 31, but the market is pricing in an extension,” says Flávio Serrano, a senior economist with Espirito Santo Investment Bank in São Paulo. “The trouble is that Guido Mantega, the finance minister, says it will not be extended.”
Many believe Mantega is holding off on the extension to pressure General Motors Co., which is reportedly planning massive layoffs at one of its plants. Mantega had said earlier that automakers had promised to hold off on layoffs in exchange for the tax break.
The credit expansion led to an increase in durable goods orders, but that has petered out as banks reeled in their risk. Non-durable goods, which are more related to income than to credit, have remained strong, and the results are showing in the market.
“In retail, those related to income are strong, while those related to credit are performing in a bad way,” Serrano says.
And this translates into continued sideways action in the IBovespa, but directional movement in certain sectors, says Mariano Silva, an independent trader based in São Paulo.
“For now, it’s really about individual shares and sectoral ETFs,” he says. “This kind of uneven growth will be with us for a while, and it’s a government-led thing.”
For clues, he and Serrano advise keeping an ear out for pronouncements by Mantega as well as Luciano Coutinho, chairman of Banco Nacional de Desenvolvimento Economico e Social (the Brazilian National Development Bank, or BNDES).