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Brazil GDP Q4 2019

Brazil: Economic growth moderates in Q4 2019; full-year 2019 growth sinks to three-year low

Economic growth moderated to 0.5% in Q4 from 0.6% in Q3, matching market expectations. On an annual basis, economic growth accelerated to a two-year high of 1.7% in Q4 from Q3’s revised 1.2% growth. Meanwhile, taking the year as a whole, the economy grew at a three-year low of 1.1% in 2019, decelerating from 2018’s 1.3% expansion.

The domestic economy fared poorly in the fourth quarter. Private consumption growth softened to 0.5% quarter-on-quarter in Q4 from 0.7% in Q3. Meanwhile, fixed investment contracted 3.2% in Q4, representing the worst result since Q3 2016. The decline in investment was coupled with a sharp downturn in the construction sector and a steep moderation in industrial production—specifically in the extractive sub-sector. Moreover, inventories subtracted 0.2 percentage points from sequential growth in Q4, contrasting the 0.6 percentage-point contribution in Q3. On the upside, government spending rebounded 0.4% in Q4, reversing the 0.4% contraction in the prior quarter.

The external sector bounced back in the final quarter of 2019, despite a depressed Argentine economy and weak Chinese demand. Exports of goods and services rebounded to a one-year high of 2.6% in Q4, although this was in part due to the low base effect from the 2.1% contraction in the prior quarter and the Brazilian real falling to a record low in the quarter. Conversely, imports of goods and services fell a sharp 3.2% in Q4 (Q3: +1.7% quarter-on-quarter), marking the worst performance in a year. As a result, the contribution to growth from the external sector improved markedly at the end of the year (Q4: +0.8 percentage points; Q3: -0.5 percentage points).

The economy is seen gathering pace this year, boosted by low interest rates and a projected recovery in industrial output, although intensifying headwinds could derail momentum. The coronavirus outbreak has dealt a major blow to an already slowing Chinese economy, which has weighed on commodity prices and disrupted global supply chains. Moreover, the virus’ nascent arrival in Brazil raises concerns that a full-on outbreak could cause the reform agenda to take a backseat in H1. Consequently, despite the Central Bank’s indication it would hold rates at its February meeting, it may well return to its easing cycle given the notable increase in risk to the global outlook in recent weeks and tighter financial conditions as a result.

Commenting on the outlook, Alberto Ramos, an economist at Goldman Sachs, noted:

“Given the expanding coronavirus outbreak, […] we expect manufacturing and services activity, trade and tourism to be negatively affected and the terms of trade to deteriorate alongside lower commodity prices. Furthermore, the increase in risk aversion and flight-to-safety flows has tightened domestic financial conditions.”

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