Brazil: Contraction in GDP eases in Q3
November 30, 2016
The deep recession plaguing Brazil, Latin America’s largest economy, eased in the third quarter, although dynamics remained feeble. GDP fell 2.9% over the same quarter of the previous year in Q3, which was above Q2’s 3.6% fall and marked the best reading in over one year. The result was slightly worse than the Consensus Forecast had projected. Despite the improvement, steep contractions were recorded in almost all components of GDP as activity remains depressed by high unemployment, low business and consumer confidence, and still low commodity prices.
A broad-based improvement was seen in the domestic side of the economy, supporting the headline figure. Private consumption fell 3.4% after contracting 4.8% in Q2, the smallest contraction in over one year. Easing inflation is reducing the squeeze on household income, but high unemployment continues to hurt consumers. Fixed investment fell 8.4% in Q3, a less pronounced fall than Q2’s 8.6% drop. Business confidence has picked up from record lows in recent months but the high-interest-rate environment and weak credit growth are hurting investment. Government consumption fell 0.8% in Q3, a more pronounced drop than the 0.5% fall in Q2.
Taking a look at the external side of the economy, growth in exports of goods and services slowed notably from Q2’s 4.0% to a meagre 0.2% in Q3, reflecting the adverse impact of sluggish global trade and an appreciation in the real. Meanwhile, the stronger real also drove the contraction in imports to abate, declining 6.8% in Q3 (Q2: -10.4% year-on-year). Subdued demand has been dragging on imports in recent quarters, but an increase in demand related to the Summer Olympics and improving investment likely caused the decline in imports to be much less than in the previous quarter.
On a quarterly basis, the economy contracted 0.8%, which was a deterioration from the 0.4% drop recorded in Q2.