Brazil GDP


Brazil: Economy enters technical recession in Q2

August 28, 2015

In the second quarter, GDP fell 1.9% over the previous quarter in seasonally-adjusted terms, which was a deterioration over the 0.7% decrease seen in the previous quarter. As a result of two consecutive contractions, the Brazilian economy entered technical recession in the second quarter. Q2’s drop was also down from the 1.7% contraction that market analysts had expected.

Q2’s contraction was driven by a deterioration in both domestic and external demand. Private consumption dropped 2.1% over the previous quarter, which was down from the 1.5% decrease seen in the first quarter. Moreover, fixed investment plummeted 8.1% in Q2 (Q1: -2.4% quarter-on-quarter). Conversely, government spending swung from a 1.5% contraction in Q1 to a 0.7% expansion in Q2.

On the external side of the economy, growth in exports of goods and services dropped from 16.2% in Q1 to 3.4% in Q2. Conversely, imports contracted 8.8% in Q2, which contrasted the 0.9% expansion tallied in the first quarter. As a result, the external sector deteriorated slightly from a plus 21.6 percentage point contribution in Q1 to a plus 19.9 percentage point contribution in Q2.

On an annual basis, in Q2, the economy contracted 2.6% compared to the same quarter of the previous year, which was a significant deterioration from the 1.6% decrease tallied in Q1. In addition, the result marked the largest contraction since Q1 2009.

The Central Bank expects GDP to grow 0.3% in 2015 and accelerate to a 1.5% expansion in 2016. LatinFocus Consensus Forecast panelists expect the economy to contract 0.6% in 2015, which is down 0.5 percentage points from last month’s estimate. For 2016, the panel sees GDP growth at 1.5%.

Author: Angela Bouzanis, Senior Economist

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