Indeed, so far growth has been conspicuously absent. Figures released by the government's own statistics unit, the Instituto Brasileiro de Geografia e Estatística (Ibge), at the beginning of August show industrial output was stagnant in the first half of the year, growing just 0.1% on the same period of 2002. In June alone it fell 2.6% compared to the same month last year. If the comparison is made not with the equivalent period in 2002 but the quarter immediately before, output fell 1% in the first three months of the year and 2.6% in the second.
Weak domestic market
The malaise is the result, primarily, of a weak domestic market. National confederation of industry (CNI) figures show industrial sales were down 3.11% in June compared to the same month last year, and this was the third consecutive monthly fall. Collectively, the second quarter showed a drop of 2.82% in industrial sales, in sharp contrast with the first quarter, when they were up 4.71% compared with the first three months of 2002.
That the domestic market was the main culprit in industry's poor performance in recent months is borne out by the fact that the production figures for individual sectors in the second quarter reveal those that depend more heavily on the home front are the ones that suffered most.
Production of home electrical appliances, for instance, was down 13.3% in the period, after falling 7.3% in the previous three months. Cement production was down 14.8% and packaging, 6.5%. Even the automotive sector, which can at least ease its pain by stepping up exports, saw a drop of 11.1% in output during the quarter.
GDP forecasts revised downward
This situation has had a direct impact on estimates for GDP growth for the year as a whole, which must now suffer a downward revision. The Ipea (Instituto de Pesquisa Econômica Aplicada) economic research unit in São Paulo had been predicting 1.6% growth in GDP for 2003, but will announce a new, lower figure at the beginning of September. The consultancy firm Tendências, meanwhile, has already lowered its forecast from 1.3% to 1%.
The pressure is thus on for the government to take steps to get the economy going again. A degree of improvement is normal anyway in the last quarter, as retailers start to stock up in anticipation of improved sales leading up to Christmas.
Unrest
This year, however, Lula faces a wave of unrest on the street and in the fields, as unions, homeless and landless movements have united in the social movements coordinating council (Coordenação dos Movimentos Sociais, CMS), which is organising five demonstrations across Brazil starting on 16 August.
The homeless workers' movement (MTST) is also planning to occupy unused land in major cities, while the Central Unica dos Trabalhadores (CUT) union organisation is promising tough wage negotiations in September and October, in an attempt to recover income lost during the eight years of Lula's predecessor, Fernando Henrique Cardoso.
Not surprisingly, all this discontent tends to erode the government's support in congress, where the appetite for unpopular reforms to pensions has waned. On both fronts, therefore, it behoves the government to take steps to stimulate growth in the short term.
Temporary measure
It took a first step in early August, announcing a temporary three-percentage-point reduction in the IPI excise tax on motor vehicles, lasting until the end of November. This measure seeks to address the downturn in the domestic market, which saw an 8.3% fall in vehicle sales in the first seven months of the year, with 160,000 units currently sitting in factory yards waiting for consumers. It is seen as a palliative rather than a solution, however.
The manufacturers promised to carry the tax cut across to end customers, but added that any increases in raw material or component costs would result in higher vehicle prices again. Even if they don't raise prices, the expectation is that the tax cut will make the situation slightly less awful, with the prediction now from national automakers' association Anfavea being that domestic sales will end the year 5.8% down on 2002.
More temporary tax cuts may be announced shortly, as the government seeks to breathe some life into the market. Another possibility, and one which would almost certainly have a greater impact on consumer behaviour, is that the central bank's monetary policy council (Copom) could drop the base interest rate below its current punishingly high level of 20%.
CDES report
The government's economic and social development council (CDES) is about to present it with a report on Brazil's economic situation, complete with a series of ten suggestions for short-term revitalisation. Among its ideas is the revival of the `sectoral chambers' used by various governments over the last two decades to micro-manage various industries at times of economic crisis.
In the past, these entities have served for government and industry to negotiate increases at times of price controls and have required sector representatives to become regular monthly visitors to Brasília for discussions with the relevant ministries. Now, the CDES idea goes, they could be used to develop sector-specific responses to resuscitate demand for goods.
It all smacks of the kind of bureaucracy Brazil has been trying to put behind it in recent years, however, and seems to be masking rather than addressing the central problem, namely the lack of a broad, cohesive industrial policy.
Second-half growth
The consensus among economists is that there will be an upturn in economic during the second half of the year, with or without the tax reduction on vehicles. The question is whether it will merely be the start of another short burst of growth or the beginning of something more sustained. `It's a movement that's been taking place for at least the last nine years,' commented Júlio Sérgio Gomes de Almeida, executive director of the institute of industrial development studies (Iedi), a think-tank funded by industry. `The economy heats up and cools off, but can't sustain growth for any longer than 15 consecutive months.'
Only a bona fide industrial policy can attract the investment flows required for longer-term development. Iedi is lobbying in particular for a policy definition on private sector involvement in infrastructure, a subject on which Lula's workers' party has traditionally been at best lukewarm, when not downright hostile.
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