Brazil: Economy contracts for second successive quarter in Q3
December 2, 2021
GDP dropped at a softer pace of 0.1% on a seasonally-adjusted quarter-on-quarter basis in the third quarter, improving slightly from the 0.4% contraction recorded in the second quarter. Q3’s reading marked the second successive quarter of contracting activity, and was below market analysts’ expectations of a slight expansion. On an annual basis, economic growth cooled to 4.0% in Q3, down from the previous period's 12.3% expansion, as the favorable base of comparison reduced.
Domestically, the economy recovered some momentum after Q2’s downturn: Household spending rebounded, growing 0.9% in seasonally-adjusted quarter-on-quarter terms in Q3, following the 0.2% contraction recorded in Q2. Meanwhile, fixed investment dropped 0.1% in Q3, moderating from the 3.0% decrease logged in the previous quarter. Lastly, government spending growth softened to 0.8% in Q3 (Q2: +0.9% s.a. qoq), weighing on the overall reading.
On the external front, exports of goods and services fell 9.8% on a seasonally-adjusted quarterly basis in the third quarter, which contrasted the second quarter's 13.7% expansion. A sharp contraction in agricultural output will have contributed to the downturn, with the end of the soybean harvest and ongoing drought conditions weighing on the sector. In addition, imports of goods and services declined at a steeper rate of 8.3% in Q3 (Q2: -1.3% s.a. qoq).
On the outlook for the Brazilian economy, Ana Madeira, chief Brazil economist at HSBC, noted:
“We adjust our GDP growth forecast down to 4.7% for 2021 (from 5.0%) following the negative surprise of GDP in Q3 and recent activity indicators that have been on the weaker side. This is in line with our low growth forecast of 0.6% for 2022, driven by a deceleration in private consumption (high inflation and rates, still weak labour market) and weak investment in an electoral year. Moreover, a deceleration in activity that becomes more visible is also supportive of our monetary policy rate call for a lower terminal SELIC rate at 10.25% in Q1 2022, compared to consensus at 11.25%.”
Author: Stephen Vogado, Economist