Fears that Brazil could be heading towards recession
Brazil's economy shrank in the first quarter for the first time since 2016
Brasilia — Brazil's economy shrank in the first quarter for the first time since 2016, data showed on Thursday, pushing Latin America's largest economy closer to a double-dip recession.
The contraction piled pressure on President Jair Bolsonaro, who was swept into office in January after making market-friendly pledges to boost growth and lift the gloom hanging over the economy since a brutal 2015/2016 recession.
Brazil's gross domestic product (GDP) shrank 0.2% from the prior quarter, statistics agency IBGE said, in line with the median estimate in a Reuters poll. The economy grew 0.5% from a year earlier, in line with economists' forecasts.
Although the figures were in line with forecasts, the economy remains weak. Leading indicators from April and May, such as consumer confidence, bank lending and export data, also suggest the economy is still in a funk.
"The signs so far in the second quarter are that the economy is not recovering," said Isabela Guarino, chief economist at XP Asset Management in Sao Paulo, who forecast growth of just 0.1% in the April-June quarter.
"But there is a very real risk of contraction, which would take the country into a technical recession. It's not our base case, but it's a rising risk," she said.
Brazil has been in recession five times in the past 20 years. The last time was 2015/2016, one of the worst recessions in the country's history. The recovery since then is the weakest on record, according to Alberto Ramos at Goldman Sachs.
Brazilian markets showed little reaction to the data. The Bovespa stock market was up 0.4% in early trade, the real was steady at 3.9770 per dollar and the most heavily traded interest rate futures contracts over the next year were flat to slightly higher.
The currency has risen and rate expectations have fallen sharply in recent days.
The central bank's weekly survey of around 100 financial institutions showed the average estimate for 2019 GDP growth had fallen for 13 consecutive weeks and now stands at 1.2%, down from 2.5% at the start of 2019.
Fixed investment fell 1.7% in the first quarter, industrial output fell 0.7% and agricultural output fell 0.5%, IBGE figures showed. A 1.9% slump in exports and 0.5% rise in imports meant net trade was a drag on growth.
On the other hand, services activity grew 0.2%, household spending rose 0.3% and government expenditure increased 0.4%.
"The economy is stagnating, but the bias is downward. Growth will be near zero this year," said Jose Francisco Goncalves, chief economist at Banco Fator in Sao Paulo.
Brazil's GDP was worth 1.714-trillion reais ($431bn) in the first quarter, IBGE said.