Short-term high

Rousseff's popularity a lagging economic indicator

Dilma Rousseff is basking in a 79 per cent approval rating. But the Brazilian president's popularity may be a lagging economic indicator. It coincides with GDP growth running less than one percent and inflation rising. Past expansion, high employment and popular social policies are buoying Rousseff for now, but the slowdown and weak productivity growth mean it won't last.

The president took office in 2010, when the Brazilian economy was expanding rapidly, helped by massive loans from Brasilia's development bank. Growth has however cooled sharply, and the 0.9 per cent uptick in 2012 only matched the projected increase in the country's population - against the government's own expectation at the beginning of last year of 4.5 per cent growth. Inflation has also ticked up to 6.4 per cent in the year to March.

Two factors may be central to Rousseff's current popular support. The unemployment rate in January was just 5.4 per cent, close to record low levels. And interest rates have come down, with the Selic short-term rate currently at 7.25 per cent, itself a record low.

Yet, she is risking economic trouble and a future slide in her ratings. Interference in the management of Petrobras, the government-controlled oil giant, and Vale, the once state-owned mining group, has tied down two important areas of the economy. And the imposition of draconian price controls on the electricity sector may please consumers, but won't help the businesses concerned.

Rousseff also should be watching Brazilian productivity figures. Modest growth in 2011 and a slight decline in productivity in 2012, according to the Conference Board's Total Economy Database, don't bode well for the economy and individual earnings in the years ahead.

The economy matters for elected politicians in Brazil, as everywhere else. Continuing sluggishness could easily dent her appeal by October 2014, when she is expected to run for re-election. She could always resort to stimulus, as she did in 2010. But with Brazil's current account deficit a record high in January and above expectations in February, there is limited room for extravagance. Rousseff might do better to unshackle economic activity before it's too late.