Brazil's electric grid depends on hydropower, but a long drought in the southeast region has caused a drop in energy production. In addition, Brazil has not added enough power-generating plants to keep up with the rise in energy demand. On May 18, the government announced a rationing plan to start on June 1. Now, industry will be hampered by energy problems as well as by higher interest rates. The central bank has tightened significantly this year in a bid to stop the rise in inflation.
Inflation is also up because a weak real is lifting import prices.
The Brazilian currency has been sinking this year because of neighboring Argentina's financial woes and a scandal in Brazil's Congress. But the energy crisis, as well as higher interest rates, threaten to slow growth even further. The McGraw-Hill Companies Inc. All rights reserved.