Brazil’s Finance Minister Guido Mantega attributes the meager 0.2-percent increase in the country’s gross domestic product (GDP) during the first quarter to volatile exchange, the rise in inflation, and scarce credit, based on figures released Friday (May 30) by the Brazilian Institute of Geography and Statistics ("IBGE").

The minister argues that an increase in inflation was reported in the first quarter, and that this expansion made an impact on consumption among families. “Although salaries as a whole as well as the number of jobs have risen, credit has grown scarce. Also, high inflation, especially in food, has diminished families’ consumption.”

For him, the strategy adopted by the government to combat inflation is effective. “Inflation might go up for one or two months due to seasonal factors like the increase in foodstuffs, which are already going back down. But inflation will be much lower in the second quarter, which means giving back purchasing power to families and consumers. International volatility should also drop and that will bring back the calm to exchange and stock markets,” he said.

Mantega further mentioned the influence of external factors, like the slow recovery of the global economy. “We saw a negative growth of 1% in the US, with lower investment and lower demand. This is harmful to us, as the US imported less. Even Europe’s growth was below expectations.”

International investment

According to the minister, in January and midway through February, exchange volatility brought uncertainties to the market and hindered the performance of developing countries. As for capital flow, he noted that the current picture is positive and that the country has been the recipient of strong direct international investment, which, in 2013, “grew more than in most countries.”

In his view, retail trade is recovering and credit may improve, as delinquency has been on the wane over the last couple of years and reports one of its lowest rates (3%), “which makes it possible for credit to be driven back up,” he believes.

For Mantega, consumers’ lower confidence is not a Brazilian phenomenon and is found in other countries as well. In his opinion, trust should build again as soon as the economy presents better outcomes. “Last year, other developing countries reported a drop in confidence, due to Fed’s policy, which changed capital flows. But the tendency is one of improvement.”

The minister avoided making predictions about the remainder of the year, and said that any new forecasts will be made over the course of the upcoming periods, with the next results as a basis.