Brazil: Economy bounces back at record pace in Q3
The economy bounced back robustly in the third quarter, growing at the quickest rate on record as the easing of Covid-19 containment measures and sizable fiscal stimulus enabled the gradual firming of activity. GDP expanded 7.7% on a seasonally-adjusted quarter-on-quarter basis in Q3, contrasting the 9.6% contraction seen in Q2, albeit coming in below market analysts’ expectations of a 9.0% rebound. On an annual basis, output fell 3.9%, marking a softer decline than the previous quarter’s 10.9% decrease.
The rebound reflected notable improvements in the domestic economy. Household spending jumped 7.6% on a seasonally-adjusted quarterly basis in Q3, contrasting Q2’s 11.3% contraction, as consumers resumed their purchases following the lifting of restrictions. Moreover, fixed investment surged 11.0%, swinging from the 16.5% contraction in the prior quarter, while government expenditure grew at the fastest pace in over a decade, expanding 3.5% (Q2: -7.7% s.a. qoq).
On the external front, exports of goods and services declined 2.1% in Q3 (Q2: +1.6% s.a. qoq) amid still-muted foreign demand. Meanwhile, imports of goods and services slid at a slower rate of 9.6% in Q3 (Q2: -12.4% s.a. qoq).
Looking ahead, after this year’s projected contraction due to the effects of Covid-19, the economy is seen rebounding strongly in 2021 as domestic and foreign demand recover. However, the gradual reducing of fiscal stimulus as the coronavirus shock fades, an elevated unemployment rate and ballooning public debt represent downside risks to the outlook.
Commenting on the outlook for the Brazilian economy, Alberto Ramos, economist at Goldman Sachs, reflected:
“We expect real activity to continue to recover in coming months supported by the gradual and selective easing of mandated social distancing protocols and lockdowns, easier domestic and external financial conditions, additional fiscal and lagged monetary stimulus, recovering commodity prices, and firming global growth. However, a still very complex domestic Covid viral picture, weak labor market, and expected phasing-out of some of the current fiscal support measures should soften the pace of the recovery until the roll-out of mass vaccination programs allows for improved mobility and activity, particularly in some still lagging services sectors.”
Moreover, further commenting on the risks to the outlook, Carlos Pedroso, chief economist, and Mauricio Nakahodo, senior economist, at Banco MUFG Brasil S.A., noted:
“From now on, we expect the slowdown of economic activity. Leading and coincident indicators already show it. The reasons are the smaller monthly emergency stipend (from September to December it was reduced from BRL 600 to BRL 300), the lack of parts and intermediate goods affecting production to some extent and the still very high unemployment rate. […] For 2021 onwards, we see the economy at a smaller pace of growth […] assuming that the monthly emergency stipend will be over, the progress of the reforms will be timid and the labor market will continue to limit a better performance, this latter one specially in 2021.”