By Filipe Pacheco

Brazilians did not spend many of these in Q3.

BRAZIL IS SLOWING DOWN AT A FASTER PACE than expected by analysts and observers, especially when compared to other developing economies during the past fiscal quarter. For a long time analysts have considered Brazil a land immune to the harsh financial crisis that has been punishing developed economies – especially Europe – but numbers released last week by IBGE, the country’s official statistics agency, show that the Brazilian Gross Domestic Product has grown literally not at all in the third quarter of 2011 in comparison to the previous quarter.

With zero growth, the result is worse than that of the Euro Zone, which grew 0.2% in the same period. At the same time, the GDP of the United States, Germany, and France grew 0.5%. Brazil’s Latin America neighbor Chile improved by 0.6%, and Nearshore IT competitor Mexico expanded 1.3%.

Surprisingly, the segment of the economy that gave the most support to the Brazilian GDP figures (or helped them avoid being even worse) was the export sector, which grew 1.8%. Domestic demand, especially consumption by families – which has been considered a reliable booster of Brazilian growth in the past few years – fell 0.1% in the quarter, while government expenditures fell 0.7%. Investments as a whole dropped 0.2% and imports shrank 0.4%.

This is the first time the economy of Brazil hasn’t grown since the beginning of the international financial crisis, which started in September of 2008. With these results, most economic analysts now consider it will be impossible to reach growth greater than 3% for this year, and also hard to advance to 3.5% in 2012 – and basically impossible to reach the 5% forecast by the government for next year. The numbers are considerably lower than the 7.5% growth that marked the year 2010.

In a statement issued by the Secretariat for Social Communication, the Brazilian government referred to the third quarter as “stable,” and Finance Minister Guido Mantega said, “We expect an economic recovery in the fourth quarter and up to 5 percent growth for 2012.”

The domestic market now expects the government to act, mainly by reconsidering a series of measures intended to avoid an overheating of the economy. At the end of 2010, by then still under the administration of Luiz Inácio Lula da Silva, the government implemented a serious of taxation and other means to de-accelerate the economy, referred to as “medidas macroprudenciais.”

These measures were considered also as weapons to fight inflation, which today is close to 6.5% a year. Brazilians still have nightmares of the uncontrolled inflation that marked the 1980s and lasted until 1994, when the country reformed its whole economic system and established the Real (R$) as the nation’s currency.

IT Industry Can Help by Looking Outside

The numbers of growth for the national IT industry are traditionally bigger than those of the national economy. For this year, IDC forecasts that the technology segment in Brazil will grow 13%. Sergio Pessoa, director of Global Market Development for Brasscom (The Brazilian Association of Information Technology and Communication Companies), told Sourcing Brazil that discussions with members of the association confirm the expectations of growth both for 2011 and 2012. They expect that the IT industry will continue to experience better numbers than the country’s overall economy as a whole.

According to Pessoa, the IT industry’s role in the economy can be even greater in the next quarters to come. “We are working to implement cost-reduction measures that are intended to give support to the growth of exports,” he said.

Djalma Petit, Market Director at Softex (the Brazilian Association for Promoting the Software Export) and a leading proponent of IT exports, shares that point of view. According to Petit, Brazilian exporters will have to keep their eyes on the financial numbers from the United States, since the biggest clients of Brazilian IT exports are in America. “The American economy is in the process of initiating its own recovery and, if that process succeeds, our exportation of software and services will grow,” he said.

But Petit added that the Brazilian IT industry is still focused too much on the domestic market, and that has to be changed somehow. “Multinational companies that operate here are welcome and contribute to exports. But the level of exportation done by the national industry is still below desirable levels. Our companies are only able to export after consolidating themselves in the domestic market, but there is a clear tendency to give more support to the foreign players.”

For Petit, the first thing that could enlarge the IT industry’s role in exports would be to strengthen their financial health. Helping them grow domestically would make it possible for them “to be able to compete in the international field.”

Brasscom officials have said that certain measures recently announced as part of Plano Brasil Maior, such as those that lower taxes on the payroll of IT software and services companies, show what can be done to provide incentives and boost the tech industry in the country.

According to numbers provided by the Association, the Brazilian IT industry finished 2010 with earnings of US$85 billion, of which only about 2.5% was from exports. From Pessoa’s perspective, that proportion could be higher if the exchange rate, which today is around US$1 to R$1.80, was not so high and if the high tax rates were lowered. “Our export potential is huge. We project that exports by the technology sector will grow to US$20 billion by 2022,” he said.