Brazil: GDP grows at softest pace since Q4 2023 in Q3, but still beats expectations
GDP growth overshoots market expectations: The Brazilian economy tapped on the brakes in the third quarter, with GDP growth slowing to 0.9% on a seasonally adjusted quarter-on-quarter basis, down from 1.4% in the second quarter. Nonetheless, while the result marked the slowest growth since Q4 2023, it surpassed market expectations.
On an annual basis, economic growth accelerated further to 4.0% in Q3, following the previous quarter’s 3.3% expansion and marking the strongest expansion since Q1 2023.
Consumers take the driver’s seat: The slowdown reflected softer growth in fixed investment, and exports swinging to a contraction. Domestically, fixed investment growth moderated to 2.1% in Q3 (Q2: +2.2% s.a. qoq), marking the weakest result since Q4 2023. More positively, private consumption increased 1.5% in the third quarter, which was above the second quarter’s 1.4% expansion. Furthermore, public spending bounced back, growing 0.8% in Q3 (Q2: -0.3% s.a. qoq).
On the external front, exports of goods and services plunged at the steepest rate in over two years, contracting 0.6% in the third quarter (Q2: +1.5% s.a. qoq). Meanwhile, imports of goods and services growth softened to 1.0% in Q3 (Q2: +7.3% s.a. qoq), marking the weakest reading in almost a year.
Looking at sectoral data, both the services sector—which accounts for over two-thirds of the economy—and the industrial sector were the main contributors to growth.
GDP growth to slow ahead on tight monetary policy: Our Consensus is for sequential GDP growth to have roughly halved from Q3 in Q4, and to then stabilize in 2025. Inflation is expected to average around the top of the Central Bank of Brazil’s 1.5–4.5% tolerance band this year, restraining private consumption. Moreover, our panelists anticipate an even tighter monetary policy stance in coming quarters, likely restraining investment. Extreme weather and the impact of fiscal policy on inflation, investor sentiment, the real and interest rates are key factors to track.