Brazil manages to avoid recession
The 0.4% growth in the second quarter will be a relief to President Jair Bolsonaro’s government
Brasilia — Brazil’s economy rebounded in the second quarter after having shrunk in the first, official figures showed on Thursday, indicating Latin America’s largest economy comfortably avoided falling back into recession.
The 0.4% growth in the April-June period will be a relief to President Jair Bolsonaro’s government, which was in large part elected to revive an economy that was struggling to fully emerge from the devastating 2015/2016 recession.
But economists are not convinced that the factors behind the surprisingly strong performance in the second quarter — solid growth in fixed investment, construction and industrial production — will be repeated in the remainder of 2019.
GDP will grow by 0.6% in 2019 compared with 2018, assuming growth remains steady at the second-quarter level for the remainder of the year, according to economy ministry estimates in a presentation released on Thursday.
That would be significantly below the 1.1% pace recorded in each of the last two years, although official government and central bank estimates are still for a 0.8% annual expansion.
“The surprisingly strong rise in Brazilian GDP in quarter two confirms that the extremely weak activity recorded earlier this year was a blip rather than the start of a renewed downturn,” said William Jackson, Latin American economist at Capital Economics.
“But the economy is still soft and Copom is still likely to cut interest rates by a further 50 basis points when it meets next month,” he said, referring to the central bank’s rate-setting committee.
Brazil’s GDP expanded by a seasonally adjusted 0.4% in the second quarter, statistics agency IBGE said on Thursday, twice the median estimate of 0.2% in a Reuters poll of economists.
A 3.2% jump in fixed investment and a 0.7% rise in industrial production helped drive the expansion, while the services sector grew by 0.3%, IBGE said. Agricultural output shrank by 0.4%, however.
According to Jackson at Capital Economics, that was the third-best quarterly growth rate in fixed investment this decade.
Compared to the same period a year ago, Brazil’s GDP grew 1.0%, faster than the 0.7% forecast in a Reuters poll of economists. The economy was also 1.0% larger on a 12-month accumulated basis.
Within industrial production, which until now had been one of the weakest parts of the economy, manufacturing activity grew by 2.0% on the quarter and construction rose 1.9%, IBGE said.
Some economists had feared Brazil would tip back into recession, after the economy shrank by 0.2% in the January-March period, the first contraction since 2016. But a corner may have been turned.
“We expect real GDP to grow a modest below-trend 1.0% in 2019,” said Alberto Ramos, head of Latin American research at Goldman Sachs. “Real activity is expected to be supported by a firmer credit impulse, accommodative monetary and financial conditions, and gradual labor market improvement.”