Brazil: Economic activity recovers in August
Latest reading: Economic activity—a proxy for GDP—rebounded in August, rising 0.4% in seasonally adjusted month-on-month terms after three consecutive contractions, including a 0.5% drop in the previous month.
Relative to the previous month’s figures, readings in August improved for the industrial sector (+0.8% in seasonally adjusted month-on-month terms vs -1.0% in July) and the services sector (+0.2% vs -0.3% in July), which accounts for roughly 60% of GDP. In contrast, the reading for the agricultural sector deteriorated in August (-1.9% vs -0.6% in July).
On a year-on-year basis, economic activity rose 0.1% in August, following a 1.2% rise in the previous month.
Outlook: Despite August’s recovery in economic activity, our panelists now expect the economy to largely stagnate in Q3 on a seasonally adjusted quarter-on-quarter basis and to remain subdued in Q4 as the Central Bank’s monetary policy tightening cycle continues to weigh on domestic demand.
Overall, GDP growth will undershoot 2024’s expansion in 2025, before decelerating further in 2026 to its lowest level in the post-pandemic era; our panelists expect restrictive monetary policy and above-target inflation to weigh on growth in private consumption and fixed investment. Moreover, cooling agricultural output is set to dampen growth in exports. That said, a strong labor market and potential stimulus ahead of 2026’s general election should lend some support to domestic demand. Extreme weather hurting primary-sector output is a downside risk.
Panelist insight: Alberto Ramos, economist at Goldman Sachs, sees the following factors shaping the economic activity ahead:
“Going forward, we expect real activity to benefit from federal fiscal transfers to low-income households with a high propensity to consume, expansion of real household labor and non-labor disposable income, and new payroll-collateralized lending programs; mitigated by tight domestic monetary and financial conditions, high levels of household indebtedness, and low levels of economic slack (unemployment rate below the NAIRU and output gap in positive territory).”